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From NPR News, this is ALL THINGS CONSIDERED. I'm Robert Siegel.
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And I'm Melissa Block.
Federal Reserve Chairman Ben Bernanke went to Capitol Hill today to provide Congress with an update on the struggling U.S. economy. The Fed forecast he summarized called for very slow growth in 2008, but no recession.
As NPR's John Ydstie reports, that's the good news.
JOHN YDSTIE: The Fed's new forecast says that growth could be as low as 1.3 percent for all of 2008. That's down sharply from its July forecast. And since the economy is expected to pick up in the second half of the year, that could mean almost no growth at all in the first six months.
Chairman Bernanke acknowledged the problem in the second paragraph of his testimony today.
Mr. BEN BERNANKE (Chairman, U.S. Federal Reserve): The economic situation has become distinctly less favorable since the time of our July report.
YDSTIE: Bernanke went on to say what many Americans already know, that the strains in credit markets are continuing to affect many households and businesses, and that the housing industry continues to suffer.
Mr. BERNANKE: The housing market is expected to continue to weigh on economic activity in coming quarters. Home builders still faced with abnormally high inventories of unsold homes are likely to cut the pace of their building activity further.
YDSTIE: That will mean fewer jobs in construction, said Bernanke. The Fed's forecast sees U.S. unemployment rising to about 5 and a quarter percent by the end of this year.
The Fed has battled the economic slowdown by slashing its benchmark interest rate 2 and a quarter percentage points already. Bernanke signaled in his testimony that Fed policymakers are likely to cut again when they meet March 18th. But a number of congressmen, including Republican Gary Miller of California, complain the Fed's actions aren't cutting rates for borrowers.
Representative GARY MILLER (Republican, California): It has done a good job at lowering cost of funds to lenders. But for mid-January, we're looking at the opposite when it comes to mortgage rate to people who want to buy a house. They seem to be going up. Could you address that?
Mr. BERNANKE: Well, you're right that it's been more difficult to lower long-term mortgage rates through Fed action. We are able, of course, to lower short-term rates and they do have implications for, for example, resets of existing mortgages and they affect the ability of banks and others to finance their holdings of assets. So, I think that we still have power to influence the housing market and the broader economy. But your points are well taken.
YDSTIE: The Fed also faces a challenge from inflation, partly fueled by oil prices at $100 a barrel. That could restrain its ability to cut interest rates further. Congressman Miller asked Bernanke how the Fed would respond if oil prices don't come down.
Mr. BERNANKE: Oil prices don't have to come down to reduce inflation pressure. They just have to flatten out. And if...
Rep. MILLER: But if they don't flatten out?
Mr. BERNANKE: Well, if they continue to rise at this pace, it's going to be a - create a very difficult problem for our economy because on the one hand, it's going to generate more inflation as you describe. But it's also going to, you know, create more weakness because it's going to be like a tax that's extracting income from American consumers.
YDSTIE: So the challenge the Fed faces right now, whether to fight inflation or keep cutting interest rates to support a weak economy, could get even tougher.
Bernanke also was asked whether he believe current approaches to the housing crisis and growing foreclosure problem are adequate. The primary effort now is a voluntary program organized by the Bush administration, which urges lenders to work with beleaguered homeowners to help them keep their homes. Bernanke said the Fed is considering other options, but that he remains skeptical about programs that include government purchases of stressed mortgages or giving bankruptcy judges the power to modify loans.
John Ydstie, NPR News, Washington.