Bernanke: Economy May Still Suffer
The Federal Reserve Chairman did not hint at any future interest rate cuts.
April 2, 2008— -- WASHINGTON (AP) -- Federal Reserve Chairman Ben Bernanke said Wednesday a recession is possible and policymakers are "fighting against the wind" in trying to steady a shaky U.S. economy. He would not say if further interest rate cuts are planned.
Bernanke's testimony the Joint Economic Committee of Congress was a more pessimistic assessment of the economy's immediate prospects than a report he delivered earlier this year. His appearance on Capitol Hill came amid a trio of economic slumps in the housing, credit and financial areas.
"It now appears likely that gross domestic product (GDP) will not grow much, if at all, over the first half of 2008 and could even contract slightly," Bernanke told lawmakers. GDP measures the value of all goods and services produced within the United States and is the best barometer of the United States' economic health. Under one rule, six straight months of declining GDP, would constitute a recession.
Bernanke said "a recession is possible" but he also said he expects more economic growth in the second half of this year and into 2009, helped by the government's $168 billion (euro107.47 billion) stimulus package of tax rebates for people and tax breaks for businesses as well as the Fed's aggressive reductions to a key interest rate.
"Much necessary economic and financial adjustment has already taken place, and monetary and fiscal policies are in train that should support a return to growth in the second half of this year and next year," Bernanke said.
To try to limit the damage, the Federal Reserve has aggressively cut a key interest rate, now at 2.25 percent, to spur buying and investing by individuals and businesses. At the Fed's last meeting in March, however, two members dissented from the Fed's decision to sharply cut rates, showing a rare division in the often unified front the Fed shows the public. The dissenting officials, who had reputations for being extra concerned about inflation, favored a smaller reduction. Although Bernanke said he hopes inflation will moderate in coming quarters, he acknowledged that high energy prices have clouded the inflation outlook.
