MercoPress. South Atlantic News Agency

US economy set to rebound in spite of housing slump

The chairman of the United States Federal Reserve Ben Bernanke forecasted Tuesday the US economy will rebound in spite of the slump in housing and the “somewhat elevated” inflation.

Bernanke reiterated the Fed's view that the economy will expand "at a moderate pace" though the housing market is a "drag" on economic growth. The upbeat view echoes May data showing consumers were unexpectedly optimistic. The Bernanke remarks came at the annual International Monetary Conference, where Mr Bernanke, Jean-Claude Trichet, president of the European Central Bank, and Toshihiko Fukui, governor of the Bank of Japan, discussed global financial conditions. The Federal Reserve chairman said first-quarter growth had been held down by factors such as an inventory adjustment, weak net exports and a slowdown in defence spending. These seemed likely to be at least partially reversed in the near term. The housing slump in the US has been a serious concern, creating fears that it could have a knock-on effect on other sectors of the economy, say analysts, but Mr Bernanke, said the impact of the slump appeared limited. "We have not seen major spillovers from housing onto other sectors of the economy". Construction of new homes looks set to remain "subdued for a time" and the glut of properties in the market will remain, he added. There has been particular concern over the impact of the sub-prime market - which provides loans to high risk individuals - as the number of default loans has risen. However Bernanke said the Fed would look at further ways to regulate the sub-prime market, following response to calls from Congress to toughen regulation of the sub-prime market. The Fed chief also said there had been a gradual ebbing of core inflation but its current level was "somewhat elevated", even though it was now just 2% on the Fed's preferred measure, and emphasised continued risks to price levels. "The continuing high rate of resource utilisation suggests that the level of final demand may still be high relative to the underlying productive capacity of the economy," he underlined. US stocks slid in early trade following Bernanke remarks, a day after the Dow Jones industrial average reached a new record. The Fed next meets to consider interest rates on 27-28 June and most analysts expect rates to remain at 5.25%, where they have been for more than a year.