U.S. Federal Reserve Board Chairman Ben Bernanke told a congressional committee Wednesday the U.S. economy is weak. He signaled further interest rate cuts to help the increasingly wobbly economic outlook. VOA's Barry Wood reports.
With average home prices down over eight percent in 2007, legislators are particularly worried about current economic trends.
"Wholesale inflation is soaring, consumer confidence is falling, and home foreclosures are spiking and prices falling sharply," said Rep. Carolyn Maloney, who represents a district in New York City.
Bernanke told the House Financial Services Committee he is more worried about the slowing economy than rising inflation. He suggested that home prices are likely to fall further. Tight credit conditions have added to the home price decline and Bernanke said the credit markets are still not functioning properly.
"Credit conditions in the financial market are creating some restraint on growth," said Bernanke. "And slower growth is in turn concerning the financial markets because it may mean that credit quality may be declining."
The Federal Reserve is predicting economic growth of two percent or less this year, a significant decline from the three percent growth in 2007. Bernanke hinted at more cuts, saying the Fed will act as needed to prop up the economy.
Lacy Clay, a congressman from St. Louis in the industrial Midwest, asked Bernanke what the government will do to help families in danger of losing their homes.
"The repercussions of the housing crisis are beginning to be catastrophic," he said. "As a result of these factors, we have many families that are working more hours for less money."
Other members were concerned about record high oil prices and the weakening dollar, which Wednesday touched a record low of $1.51 against the euro. Despite dollar weakness, Bernanke said there is no evidence that foreign holders of dollars are selling and taking their money elsewhere.
"There is not much evidence that investors or holders of foreign reserves have shifted in any serious way out of the dollar to this point," he said. "Indeed, we've seen a lot of flows into U.S. treasuries."
In an effort to boost a weakening economy, the central bank twice this year made sharp cuts in short-term interest rates, bringing the overnight fed funds rate down to three percent. Monetary policy operates with a lag, meaning that it takes some time for the rate cuts to take effect on the overall economy.