Federal Reserve Chairman Ben Bernanke on Thursday predicted "sluggish" U.S. economic growth after the dollar reached an all-time low against the euro and jittery investors kept close watch on surging oil prices. A business journalist and an economist offer analysis of the recent economic trends.
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The ups and downs of the markets and a slowing economy. We begin with some background.
Another turbulent day on Wall Street came amid a host of economic troubles: surging oil prices that this week shot as high as $98 a barrel; a weakening dollar, which fell to an all-time low against the euro yesterday; and one of the steepest downturns in the housing market in two decades.
Federal Reserve Board Chair Ben Bernanke was pressed for his own forecast during testimony before a joint economic committee on Capitol Hill.
SEN. CHUCK SCHUMER (D), New York: Is a recession out of the question? What is the likelihood we might go into a recession? If I could make it simple, on a scale of one to ten, ten being most likely, how likely is a recession?
BEN BERNANKE, Federal Reserve Chairman:
Our assessment is for slower growth, but positive growth going into next year. We think that by the spring, early next year, that, as these credit problems resolve and as, we hope, the housing market begins to find a bottom, that the broader resiliency of the economy, which we are seeing in other areas outside of housing, will take control and will help the economy recover to a more reasonable growth pace.
REP. CAROLYN MALONEY (D), New York: Do you think that the decline in the dollar will lead to inflation and higher long-term interest rates?
The decline of the dollar has the potential to raise import prices and contribute to inflation. And, therefore, we are very attentive to that risk.
Bernanke also addressed concerns about the rising costs of oil, including from Kansas Senator Sam Brownback.
SEN. SAM BROWNBACK (R), Kansas: I look at gas prices, and that's directly out of a consumer's pocketbook. That's a direct hit. And going into the Christmas season, they're saying, "You know, I'm having to pay a lot more at the pump." And it seems to really, I think, affect a mentality when you get at that three-dollar-a-gallon gas or above, as it is in many places around the country.
Senator, you're absolutely right that this is a big burden for the U.S. economy, although we've been pretty resilient so far in dealing with higher oil prices.
But I would just point out that, while it has its effects on consumer spending, it's obviously also an inflation risk, both because oil prices are part of — gasoline prices are part of the consumer's basket and therefore part of inflation. And even more concerning would be if those gas prices were to feed through into other costs and lead to a broader rise in prices. And so we have to be very vigilant to make sure that higher oil prices don't translate into broader inflation in the economy.