FED Chief says the likelihood of severe US economic slump has diminished

FED Chief says the likelihood of severe US economic slump has diminished

Federal Reserve chairman Ben Bernanke says that the likelihood of a severe US economic slump has diminished.


However he reiterated that upside risks to inflation are forcing the Fed to be more vigilant.


Mr Bernanke was speaking at the Annual Economic Conference on Inflation in Boston this morning.


He suggested that the US economy appears to be on the mend, even if conditions are fragile.


“Over the remainder of 2008, the effects of monetary and fiscal stimulus, a gradual ebbing of the drag from residential construction, further progress in the repair of financial and credit markets and still solid demand from abroad, should provide some offset to the headwinds that face the economy, however the ongoing contraction in the housing market and continuing increases in energy prices, suggests that growth risks remain to the downside.”


Mr Bernanke said the Fed would work hard to keep inflation expectations in check, which in turn would help keep a lid on price pressures.


“Thus far, the past raw materials cost to the prices of most products and to domestic labour costs have been limited, in part because of softening domestic demand, however, the continuation of this pattern is not guaranteed, and future developments in this regard will bear close attention. Moreover the latest round of increases in energy prices has added to the upside risks to inflation and inflation expectations.”


Mr Bernanke has expressed concern in the past about public expectations on inflation that prompt workers to seek higher wages and businesses to raise prices, resulting in an upward price spiral.


He said the policymaking Federal Open Market Committee will strongly resist an erosion of longer-term inflation expectations, as that would be destabilizing for growth as well as for inflation.


Source: 938Live

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