US Federal Reserve Chairman Ben Bernanke warned Thursday that
the downside risks to economic growth have grown more
pronounced.
"Recently, incoming information has suggested that the baseline
outlook for real activity in 2008 has worsened and that the
downside risks to growth have become more pronounced," said
Bernanke in testimony to the House Budget Committee.
In particular, a number of factors, including continuing
increases in energy prices, lower equity prices, and softening home
values, seem likely to weigh on consumer spending this year, he
said.
He said that consumer spending also depends importantly on the
state of the labor market, as wages and salaries are the primary
source of income for most households.
Government data showed that the unemployment rate rose 0.3
percentage point in December to 5.0 percent from 4.7 percent in
November and private payroll employment declined, a showing
Bernanke described as "disappointing."
The Fed chief said that the slowing in residential construction,
which subtracted about one percentage point from the growth rate of
real gross domestic product in the third quarter of 2007, likely
curtailed growth even more in the fourth quarter, and it may
continue to be a drag on growth for a good part of this year as
well.
In the business sector, investment in equipment and software
appears to have been sluggish in the fourth quarter, while
nonresidential construction grew briskly.
In light of the softening in economic activity and the adverse
developments in credit markets, Bernanke said, growth in both types
of investment spending seems likely to slow in coming months.
Meanwhile, financial conditions continue to pose a downside risk
to the outlook, he said, noting that the financial situation
remains fragile and many funding markets remain impaired.
"Adverse economic or financial news thus has the potential to
increase financial strains and to lead to further constraints on
the supply of credit to households and businesses," the Fed chief
said.
On the inflation front, Bernanke said that the public's
expectations of future inflation thus far appear to have remained
reasonably well anchored, and pressures on resource utilization
have diminished a bit.
And futures markets suggest that food and energy prices will
decelerate over the coming year.
"Given these factors, overall and core inflation should moderate
this year and next, so long as the public's confidence in the
Federal Reserve's commitment to price stability is unshaken," he
said.
In his testimony, Bernanke also noted that economic activity in
major U.S. trading partners has continued to expand vigorously.
"U.S. exports will likely continue to grow at a healthy pace
incoming quarters, providing some impetus to the domestic economy,"
he noted.
Once again, Bernanke pledged to aggressively slash interest
rates as needed to bolster the economy that is weakening under the
strains of a severe housing slump and persistent credit crunch.
"We stand ready to take substantive additional action as needed
to support growth and to provide adequate insurance against
downside risks," Bernanke told the committee. He made similar
remarks last week.
(Xinhua News Agency January 18, 2008)
