U.S. central bank chief, Ben Bernanke, told a congressional committee Thursday he expects the economy to slow noticeably as a result of the credit squeeze related to bad loans in the housing sector. VOA's Barry Wood has more from Washington.
Bernanke told the Joint Economic Committee that growth in the short-term will slow substantially from the nearly four percent pace of the July to September period.
He said the Federal Reserve will respond as needed to boost the economy. Bernanke said with housing weak, the dollar sagging and oil prices soaring, there are risks of both higher inflation and an economic slowdown.
He said higher gasoline prices were likely to have an impact on U.S. consumer behavior.
"I would just point out that, while it has its effects on consumer spending, it's obviously also an inflation risk, both because gasoline prices are part of the consumers basket [of purchases] and therefore part of inflation," said Bernanke. "And, even more concerning would be if those gas prices feed through into other costs and lead to a broader rise in prices."
Worried that a weak dollar and higher priced oil could plunge the U.S. economy into a recession, prices on the New York stock exchange have fallen sharply.
Bernanke declined to comment on the dollar's steady decline against most other major currencies, with the notable exception of the Chinese renminbi.
Bernanke was asked about China's role in the world economy and what it should do to promote balanced global growth.
"They need to increase the flexibility of their exchange rate in order to allow for the natural process of demand to shift away from a totally export oriented economy to a more balanced, domestic oriented economy," he said.
China allows only gradual changes in its exchange rate, managing the renminbi in a tight trading range against the U.S. dollar.
Bernanke expressed concern about the distress being felt by many Americans who are struggling to keep up with the payments on their homes.
He suggested that lenders should do more to prevent repossessions of homes where borrowers are unable to pay. But he said the mortgage problems that have been affecting people with risky variable rate bank loans are likely to worsen before they improve.