ALEX CHADWICK, host:
From NPR News it's DAY TO DAY.
Federal Reserve Chairman Ben Bernanke began two days of congressional testimony today in Washington. He is warning lawmakers that the U.S. is in for more sluggish economic growth and he's saying he may cut interest rates even further to brace up the economy. MARKETPLACE's Sam Eaton is here. Sam, what else did you hear in the message from Mr. Bernanke today, especially to calm anxieties on Wall Street?
SAM EATON: Well, it wasn't exactly a rosy message. Wall Street was looking for signs of how the Fed will manage the increasingly competing risks of the slowing economy versus the rising inflation consumers are already seeing in their food and energy prices. Here's what he had to say.
Mr. BEN BERNANKE (Federal Reserve Chairman): The risks to this outlook remain to the downside. Those risks include the possibilities that the housing market or the labor market may deteriorate more than is currently anticipated and that credit conditions may tighten substantially further.
CHADWICK: So what exactly does that mean for the Fed's economic policy going forward?
EATON: Well, it does take a little reading between the lines to get to that. And for that I talked to Mark Zandi, who's chief economist for Moody's Economy.com. He said the answer to that question on everyone's mind, which is how Bernanke plans to juggle the simultaneous risk of recession and inflation, was loud and clear.
Mr. MARK ZANDI (Moody's Economy.com): He's trying to say, listen, the big problem here is the economy, it's very weak. We are concerned about inflation and the recent acceleration, but so far most of the inflationary problem is in things like energy and food. It hasn't bled out into the rest of the economy.
EATON: So in other words, the Fed is a lot more worried about the overall economy than it is about inflation, at least for the moment. Especially since the inflation problem would pretty much resolve itself if a recession hits and demand for energy plummets as people reign in their budgets.
Until inflation bleeds out into things like car prices and clothing, the Fed says it's going to keep its finger on the bigger problem, preventing the economy from sliding any further. And that means more rate cuts to come.
CHADWICK: But the rate cuts so far haven't really turned the economy around.
EATON: Yeah, I mean this is the big question. There are probably a lot of homeowners out there wondering why their mortgage rates are continuing to inch upward, regardless of the recent rate cuts by the Fed. The answer is that banks don't think they're out of the water just yet. Even the Fed predicts plunging home prices and the ballooning mortgage crisis will continue to drag the economy down in 2008.
That means it will likely take much deeper cuts in interest rates before banks start to react with lower mortgage rates. So the final question is really whether government fiscal policy can react fast enough to prevent a recession or whether the markets will work it out on their own. Unfortunately the bottom line is that consumers are in for some tougher times ahead.
CHADWICK: Thank you, Sam. Sam Eaton of public radio's daily business show, MARKETPLACE.
NPR transcripts are created on a rush deadline by Verb8tm, Inc., an NPR contractor, and produced using a proprietary transcription process developed with NPR. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.