Fed Chairman Ben Bernanke Warns of Business Growth Slow-Down

WASHINGTON – Federal Reserve Chairman Ben Bernanke said Thursday that a host of economic problems, including the severe housing slump, will cause business growth to slow noticeably in coming months.

Bernanke told Congress' Joint Economic Committee that the central bank is watching developments closely, but gave no signal that it's prepared at the current time to cut interest rates even further.

Fed policymakers last week cut a key interest rate for the second time in two months, but disappointed Wall Street by discouraging expectations that it would follow with further rate cuts.

Bernanke said he and his colleagues believe economic activity will "slow noticeably in the fourth quarter" compared to the 3.9 percent pace of the third quarter.

"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 begin to wane," Bernanke said in his prepared remarks to the JEC.

Many economists believe the economy's maximum point of danger of falling into a recession will occur in the early part of next year.

A variety of problems from the steepest housing downturn in more than two decades to a severe credit crunch, surging oil prices and a falling dollar have roiled Wall Street in recent days, triggering big plunges in stock prices.

The Dow Jones industrial average plunged by 360.92 points on Wednesday, the second drop of that magnitude in the past week.

Much of that anxiety stems from a steady stream of bad company news as corporate giants such as General Motors, Merrill Lynch and Citigroup have reported huge losses.

Bernanke acknowledged the recent market turmoil, but he generally took a more upbeat view of things, saying the Fed believes the economy should rebound from the current problems by the second half of next year.

He also repeated worries the Fed expressed last week: recent increases in oil and other commodities could raise the threat of inflation.

The Fed last week said the threats from weak growth and higher inflation seemed roughly in balance. Such a view, which Bernanke repeated on Thursday, will likely mean that the central bank plans no further interest rate cuts.

"All told, it was the judgment of (Fed policymakers) that, after its action on Oct. 31, the stance of monetary policy roughly balanced the upside risks to inflation and the downside risk to growth," Bernanke said.

However, members of the congressional panel said they believed a much more aggressive response was needed.

"I think we are at a moment of economic crisis," Sen. Charles Schumer, D-N.Y., told Bernanke. "I am not surprised to hear experts such as your predecessor, Alan Greenspan, warn about the threat of a recession. I have begun to worry about it to."