Federal Reserve chairman Ben Bernanke told U.S. lawmakers a day after the global stock drop that his economic outlook remains unchanged and that financial markets are functioning "normally."
"There didn't seem to be any single trigger of the market correction we saw yesterday," Bernanke told a House of Representatives yesterday, a day after the sharpest decline in global stocks in years.
As for the economic outlook, Bernanke said "my view is that, taking all the new data into account, that there is really no material change in our expectations for the U.S. economy since I last reported to Congress a couple weeks ago."
His comments came shortly after the Commerce Department made a sharp downward revision to gross domestic product (GDP) growth in the fourth quarter to 2.2% from an earlier estimate of 3.5%.
Bernanke said, "We are looking for moderate growth in the U.S. economy going forward, and I would add parenthetically that the downward revision of the fourth quarter GDP numbers we got this morning was actually more consistent with our overall view of the economy than were the original numbers."
Bernanke noted that if the housing sector steadies and inventory adjustments are completed, "there is a reasonable possibility we'll see some strengthening of the economy some time during the middle of the year." The Fed chairman echoed concerns of private economists about failures of so-called subprime mortgages, or those seen as riskier than normal because of the below-average credit ratings of the borrowers. Some analysts say a wave of delinquencies could have a ripple effect on financial markets. "We've seen increasing rate of defaults" in this sector, Bernanke told lawmakers. But Bernanke said the Fed's assessment "is that there is not much indication at this point that subprime mortgage issues have spread into the broader mortgage market, which still seems to be healthy."
Copyright Agence France-Presse, 2007