Bernanke Announces ‘Gradual Growth’ For US

By Stewart Douglas

Chairman of the Federal Reserve Ben Bernanke has announced a strategy of ‘gradual growth’ for the US economy over the next two years.

In a speech made to Congress, Bernanke stated that growth would begin to accelerate through 2008, despite the potential risks of inflation, which he assures the US central Bank is determined to avoid.

“Overall, the U.S. economy appears likely to expand at a moderate pace over the second half of 2007, with growth then strengthening a bit in 2008 to a rate close to the economy’s underlying trend” said Bernanke in his address to Congress this Wednesday.

The US economy, which has seen little growth over the last few years, may be in danger of boiling over with inflation and unemployment if growth is pushed too aggressively. 

Interest rates have remained at 5.25% for almost a year, with natural price depression arising from struggling economic growth in the US economy.  However, with increasing growth forecast, it is thought that interest rates may need to be adjusted over the tail end of this year.

Additionally, with a continuing poor housing market, particularly for new builds, interest rate reductions may be the order of the day to help transform this flailing sector.

However, by reducing interest rates, inflation would almost certainly begin to rear its head, at a time when economic growth is already on the cards for the US economy.

Bernanke, in comment on the housing market, blamed slow progress for the lack of economic growth, and suggested that the faltering home market may continue to hamper the economy and forecast growth over the coming quarters.

At the same time, price rises in food and energy were said to be responsible for the majority of inflation, a factor that Bernanke described as being contrary to the objective of a stable economy.