by William Neikirk
Federal Reserve Chairman Ben Bernanke said today the U.S. economy likely will grow sluggishly the rest of the year because the housing correction is lasting longer than expected.
Even at that, he said inflation is still the central bank's top concern, a hint that the Fed is not likely to lower interest rates any time soon. It has kept interest rates steady for a year.
Food and energy prices have boosted inflation and eroded incomes recently, he told the House Financial Services Committee, and are "unwelcome developments." Inflation has risen by 4.4 percent over the first five months of the year, "a rate that, if maintained, would clearly be inconsistent with the objective of price stability."
Yet he said the "core" inflation rate--excluding food and energy--appears to be under control. Futures prices suggest investors expect lower energy and other prices "to flatten out," he said.
He said he expected the economy to grow at an annual rate of 2.25 to 2.5 percent this year, slightly below the economy's long-term trend of about 3 percent, although he said the second quarter likely will show a 3 percent growth rate.
The stock market didn't take kindly to his report. The Dow Jones industrial average, which hit a record during intra-day trading on Tuesday, was down sharply at mid-day.
Bernanke also told the committee that the federal government might have to license and regulate mortgage brokers. Many of brokers originated so-called "subprime" mortgage loans to borrowers who have either defaulted or have trouble repaying them.
He also said the Fed is in the process of overhauling regulations that deal with disclosures on mortgages.
Bernanke appeared before the panel to give the Fed's semiannual report on monetary policy and the economy. Citing declines in housing prices, sales and construction, he said the correction has further to go before the industry stabilizes.
"The pace of home sales seems likely to remain sluggish for a time, partly as a result of some tightening of lending standards and the recent increase in mortgage rates," he said.
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Comments
I keep getting poorer every year and its all Bush's fault.
Posted by: Lou | July 18, 2007 2:02 PM
As long as we are spending money on war, I dont think Feds will lower interests.
Why lower interest if money is needed...
Posted by: Hasan | July 18, 2007 3:09 PM
I'm a bond trader. When I hear somebody talk about the "core" inflation rate
"excluding food and energy"
I know I'm being fed a spin. What this really means is that the true core
inflation rate is NOT under
control. I couldn't do what I do successfully, if
I believed Bernanke's spin
for the market watchers.
Posted by: Tom Colton | July 18, 2007 3:26 PM
Amen, Lou. It's time to vote Democratic so everyone can become rich again, like we were in the 1990s.
Posted by: JB | July 18, 2007 5:12 PM
As long as the FEDERAL RESERVE SYSTEM exists there will always be this manipulation of
info and the fiat money supply at the cost to the victims..the citizens of the USA
Posted by: Mike White | July 18, 2007 5:55 PM
Geez, where are the chimpy apologistas when chimpy's very own hand-picked Fed chairman tells us things are going to be bad? Oh wait, you're still looking for how much money Bernanke contributed to Democratic causes. That's always a good spin against anti-chumpy news.
Posted by: snitramc | July 18, 2007 7:59 PM
Snitramc, Bernanke did not say the economy was going to be bad. He said it would be sluggish with GDP growing at a 2 to 2.5 percent rate. Not great, but not recessionary. We've had more than five years of growth. The economy does run in cycles. But at this point no one is forecasting recession, just sluggish growth for the rest of this year. Please try some reading and comprehension courses.
Posted by: John D | July 18, 2007 8:26 PM
It's not the first time a fed chairman has had a wrong prediction. Remember "irrational exhuberance"?
The economy has still grown for over 5 1/2 years - longer stretch than most historic growth rates.
As far as going back to the economy of the 90's under a democratic president; there better be an economic engine like the personal computer/internet like there weas in the 90's. If you only get the democcratic president, don't be surprised if you get the economy of the Carter Administration.
Posted by: Terry | July 18, 2007 8:35 PM
I think we can all see the inflation. It IS in food and energy. Yeah take two major needs out of the equation and it all looks rosy. What crap.
Posted by: Mrs. Jesus | July 19, 2007 3:27 AM
You heard it here first -
Fed hikes half point before July 2008.
New housing continue to fall while sales of existing home picks up by mid 2008.
Inflation for 2008 hits 8%
DOW breaks 15000 but suffers major decline by 3Q next year.
Economy replaces Iraq war as number one political issue.
Posted by: Terry Hay | July 19, 2007 7:41 AM
So the "core inflation" is under control. So what? That doesn't help us working stiffs who need a second job just to buy gas to get to our first job!
Posted by: Angela | July 19, 2007 7:55 AM
"It's not the first time a fed chairman has had a wrong prediction. Remember "irrational exhuberance"?"
Terry, Greenspan was dead on with his "irrational exuberance quote". The market WAS over valued in certain sectors at the time.
Posted by: Tony | July 19, 2007 8:54 AM
Please try some reading and comprehension courses.
This from a person that flat out refuses to accept the fact that the Founding Fathers only adopted Democracy from earlier cultures. I suggest you try some of your own advice.
Posted by: snitramc | July 19, 2007 10:02 AM
Tony,
Ol' Mr Greenspan made that comment in December, 1996. The dot-com bubble burst in early 2000.
Eventually he was right - so is a broken clock.
Posted by: Terry | July 19, 2007 10:20 PM
It was still a bubble Terry, and Greenspan was still right. Too bad the market that you believe is so completely infallible didn't listen to him at the time.
Posted by: Tony | July 20, 2007 10:22 AM
And Bernahke will probably be right in a couple years also .... especially if a democrat wins the White House
Posted by: Terry | July 20, 2007 7:23 PM
Well Terry, if that's true, I'm sure you won't blame the Democrat for any downturn in the economy, just as you give Clinton no credit for the good economy during his turn, right?
Posted by: Tony | July 20, 2007 9:47 PM
Tony,
My point is the market will correct itself eventually and economic cycles do happen.
But if President Clinton was so instrumental to the economy of the 90's like you believe, then President Bush deserves credit for this 5 1/2 year expansion, correct?
It depends on what the democrat does in the White House.
If the democrat would keep the Bush economic policies going, including extending the tax cuts; no I wouldn't blame an economic downturn on the democrat.
However, if the democratic president chooses to increase income taxes or increase regulations on businesses, then yes, the democratic president will get plenty of rightfully placed blame.
Posted by: Terry | July 21, 2007 5:19 PM
Inclation is on the rise and the economy isn't just stalling, it's stalled. Ben Bernanke is suddenly concerned about inflation. Well, how was your nap, Mr. Chairman? He has foolishly been cutting rates, midnlessly trying to stave off an inevitable recession. Had he stood pat, as a responsible Fed Chari would, and allowed the markets to correct, we'd have a brief and shallow downturn. But no. It's an election year and he's trying to keep the R-word off our lips come hell or high water. So he cut interest rates and had his silly auctions to increase liquidity. This has put too much money into the system too quickly and has driven the Dollar down even further. Anyone who's taken a course in macroeconomics understands that such moves causes spikes in inflation. Obviously, politics is more important to our Fed Chair than managing the money supply. Now we are facing the real possibility of a deep and long-lasting recession, with high unemployment and high inflation. The debacles of the Fed of the 1970s have been forgotten.
Posted by: REALITY | February 27, 2008 11:44 AM