Washington – Federal Reserve Chairman Ben Bernanke predicted Tuesday the economy will rebound from its anemic start to the year even if the housing slump persists. Wall Street slid, taking the news as a sign the Fed won’t lower interest rates.
Economic growth in the year’s first three months nearly stalled, logging just a 0.6 percent pace. It was the worst quarterly showing in more than four years.
However, Bernanke said some forces that figured prominently in that poor performance – including a bloated trade deficit, cutbacks by businesses in inventory investment and weak federal defense spending – “seem likely to be at least partially reversed in the near term.”
Bernanke made his comments via satellite to an international monetary conference in Cape Town, South Africa. In his talk, he stuck to the Fed’s forecast that the economy in coming quarters will advance “at a moderate pace, close to or slightly below the economy’s trend rate of expansion.”
Some economists put the economy’s normal growth rate at around 3 percent to 3.25 percent.
On Wall Street, stocks fell as investors took Bernanke’s remarks to suggest the Federal Reserve has little reason to lower interest rates any time soon.
The Dow slid more than 100 points before closing down 80.86 points to 13,595.46.
The Fed meets next June 27-28, and many economists predict policymakers will again hold the federal funds rate steady at 5.25 percent, where it has been for a year.
“The Fed remains comfortably on the sidelines,” said Scott Anderson, economist at Wells Fargo Economics.
