Federal Reserve chairman Ben Bernanke, in a cautious outlook for the US economy, said on Thursday he sees "sluggish" activity into early next year as mortgage and credit problems deepen.
Speaking to the Joint Economic Committee of Congress, Bernanke said the world's biggest economy could face more headwinds from the housing slump even as oil prices threaten to push inflation higher.
Bernanke said Fed policymakers decided last month to cut interest rates because they "expected that the growth of economic activity would slow noticeably in the fourth quarter from its third-quarter rate" of 3.9 percent.
"Growth was seen as remaining sluggish during the first part of next year, then strengthening as the effects of tighter credit and the housing correction began to wane," he said.
Bernanke's comments were in line with predictions from many private economists who see a darker economic picture for the end of this year and early next year despite a strong growth rate in the second and third quarters.
The Fed chief said the contraction in housing-related activity "seemed likely to intensify" because of tighter credit and that consumer spending is likely to grow more slowly in view of higher energy prices, credit issues and continuing weakness in housing.
As for corporate spending, he stated that "heightened uncertainty about economic prospects could lead business spending to decelerate as well."
Additionally, Bernanke said the risks to the outlook were to the downside, with a potential for even further retrenchment in credit that could slow the economy. And he said the spike in energy costs could spark higher overall inflation.
Bernanke declined to offer odds for a recession in the US economy, saying the Fed is holding to a forecast for slow growth.
"Our forecast is for moderate but positive growth," he said in response to a question about the likelihood of recession.
"We haven't calculated the probability of recession. I wouldn't want to offer that today ... We think by the spring early next year that as the credit problems resolve and as we hope the housing market begins to find a bottom, the broader resiliency of the economy, which we are seeing, will take control and will help the economy recover to a more reasonable growth pace."
Bernanke said that since last month's rate cut, the data suggests the US economy has been "resilient," but noted that volatility and strains remain.
He said between now and the end of next year, about 450,000 subprime mortgages per quarter will have their first rate resets, increasing the chance of more delinquencies and foreclosures.
The central bank on Oct. 31 cut its base federal funds rate a quarter-point to 4.50 percent, on the heels of a half-point cut in September, in an effort to ease stress in the housing and credit markets.
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