U.S. central bank chief Ben Bernanke, in a second day of testimony before a Congressional committee, says the simultaneous challenges of economic slowdown, rising inflation and a credit squeeze pose significant policy challenges for the government. VOA's Barry Wood reports.
Bernanke told the Senate Banking Committee that the economic challenges of today are more difficult than those presented by the previous slowdown in 2001.
"I agree that we're in a less advantageous position than we were," said Bernanke. "The [fiscal] deficit is certainly higher and perhaps even more seriously.
The Federal Reserve Board Chairman left no doubt that he regards combating a slowdown and thus keeping the economy out of recession as the most immediate priority. Inflation, he suggested, can be tackled later.
"The decline in home prices is creating a much broader set of issues for borrowers, for homeowners, and also for the credit markets," he said. "We have a sustained disruption in the credit process, which has gone on now since last August and has not yet near completion. So that is a continuing drag on the economy and a continuing problem for us as we try to restore stronger growth."
Bernanke is clearly hoping that the spike in energy and food prices, that have aggravated inflation, will turn around or at least level off.
"I believe that those prices are likely to stabilize or at least not to continue to rise at the pace we've seen recently," said Ben Bernanke. "If that is the case then inflation should come down."
The U.S. economy and the American consumer are currently confronting multiple challenges. They include higher prices stemming mostly from higher priced oil, which Thursday approached a record $102 a barrel and declining home prices that nationwide have fallen more than at any time in the past 50 years. In addition the dollar is at its lowest level in 30 years, making many import prices higher, and consumer confidence is weakening. The U.S. economy grew at a meager 2.7 percent pace in 2007 and the Federal Reserve is predicting no more than two percent growth in 2008.