Fed Chair Says Economic Outlook Darkening

The chairman of the Federal Reserve Board has told Congress that the housing and credit debacles have created a great strain on the economy. Energy prices have worsened, and hiring has declined.

Fed Reserve Chair Ben Bernanke said, “The outlook for the economy has worsened in recent months, and the downside risks to growth have increased. To date, the largest economic effects of the financial turmoil appear to have been on the housing market, which, as you know, has deteriorated significantly over the past 2 years or so.”

Foreclosures have reached record numbers, prompting Bernanke to say, “Further cuts in homebuilding and in related activities are likely.”

Because of the perilous nature of the economy, Bernanke says the Fed “will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks.”

The Fed chair predicts sluggish growth for the economy in the months ahead, “followed by a somewhat stronger pace of growth starting later this year.”

While Bernanke expects America’s financial fortunes to turn around, the Fed chief cautioned that it is “important to recognize that downside risks to growth remain, including the possibilities that the housing market or the labor market may deteriorate to an extent beyond that currently anticipated.”

While the Fed will probably cut interest rates further, Bernanke cautioned, “A critical task for the Federal Reserve over the course of this year will be to assess whether the stance of monetary policy is properly calibrated to foster our mandated objectives” involving promoting job growth while keeping inflation in check.

The U.S. has not faced the prospect of recession since the year 2001. Meanwhile, Treasury Secretary Henry Paulson has told Congress, “I believe our economy will continue to grow, although its pace in coming quarters will be slower than what we have seen in recent years.”

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