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New US Central Bank Chief Sees Economic Growth


In his first appearance before Congress since becoming head of the U.S. central bank two weeks ago, Federal Reserve Chairman Ben Bernanke Wednesday was cautious about further interest rate hikes and said the U.S. economy is continuing to perform well.

Bernanke was non-committal about short-term interest rates, which have been raised 14 times in the past 20 months to 4.5 percent. He did say that rates may have to rise further if inflation remains a threat. The successor to long-serving Fed chairman Alan Greenspan said that in setting rates he and his colleagues will be guided by economic data, most of which suggests that economic activity has not been significantly slowed by the higher cost of credit.

But during his appearance before the House Financial Services Committee, Bernanke was questioned at length about a perceived asset price bubble in the residential housing market. The former Princeton economics professor rejected any comparison between the housing market and the high-technology stock market bubble that burst with painful effects in 2000. However, Bernanke said he does expect that higher interest rates have affected the housing market.

"Our expectation is that the decline in activity or the slowing in activity will be moderate, that house prices will probably continue to rise but not at the pace they have been rising," he said.

Bernanke said he expects the U.S. economy will continue to expand at a 3.5 percent annual rate. Concerning the large U.S. fiscal deficit, he said that Congress must ultimately decide whether it wants a bigger or a smaller federal government.

"Those members of Congress who are in favor of low tax rates and continuing tax cuts have to accept also that in order for those low tax cuts to be sustained, ultimately they have to find the savings on the spending side to avoid exploding deficits," he said.

Bernanke said large fiscal deficits (currently equal to over three percent of GDP) pose a very serious long-term problem. He urged Congress to take steps to reduce the deficit in advance of the looming large expenditures associated with the retirement of the post-World War II baby boom generation.

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