October 05, 2006	Thursday	Ramazan 11, 1427

WASHINGTON, Oct 4: The Federal Reserve remains worried about inflation at the same time the housing market is slumping, Federal Reserve chairman Ben Bernanke said on Wednesday.

Responding to questions after a Washington speech, Bernanke said that despite these concerns he believes that “in the long run we’ll have a healthy growing economy.”

As usual, Bernanke gave no firm indication on the central bank's next move.

The Fed held rates steady for its past two meetings after 17 consecutive quarter-point rate hikes, bringing the federal funds rate to 5.25 per cent.

“In the short-run we have some challenges,” Bernanke said, adding that the central bank “remains concerned about inflation.”

He said the rate of inflation “is still above what we would consider price stability.”

”We do believe that inflation is going to be coming down gradually over time, but it’s something we have to watch very carefully to make sure that it doesn’t rise or even remain where it is,” he noted.

As for the real estate market, Bernanke said there is “a substantial correction going on in the housing market,” with construction starts down some 20 percent from a year ago.

This “is one of the major drags that is causing the economy to slow,” he added.

“I think I would estimate that slowing housing construction will probably take about a percentage point off growth in the second half of this year, and probably something going into next year as well.”

Bernanke said it was unclear how far the correction would go but that “right now we have people very unsure about the progress of prices, therefore they’re sitting on the side lines waiting for more clarity in the housing market.”

He added that there remain “strong fundamental underpinnings for the housing market and those include a good job market, strong income growth, demographics and mortgage rates which are historically relatively low. So I think ultimately the housing market is going to be supported by those factors.”

—AFP