June 06, 2007	Wednesday	Jamadi-ul-Awwal 20, 1428

CAPE TOWN, June 5: US Federal Reserve chairman Ben Bernanke said on Tuesday the world’s biggest economy was likely to improve to a “moderate” pace in future months following a pronounced slowdown at the start of the year.

As a result, US economic growth would be near to or just below its typical clip, America’s top central banker told a meeting of the International Monetary Conference in Cape Town.

“On average, over coming quarters, we expect the economy to advance at a moderate pace, close to or slightly below the economy’s trend rate of expansion,” Bernanke said via satellite.

The Fed chief cautioned, however, that the shakeout in the US housing market was continuing and said the central bank was keeping a laser-like focus on potential inflationary pressures.

“The adjustment in the housing sector is still ongoing, and the slowdown in residential construction now appears likely to remain a drag on economic growth for somewhat longer than previously expected,” Bernanke said.

US economic growth slowed to a crawling 0.6 per cent during the first three months of the year, in part due to the lingering slump affecting the housing market. And he said this suggested higher inflation pressures.

“Although core inflation seems likely to moderate gradually over time, the risks to this forecast remain to the upside,” Bernanke said.

The Fed has been reluctant in the past year to lower interest rates, which could offer relief to hard-press homeowners, for fears of stoking inflation.

The Fed funds interest rate has been anchored at 5.25 per cent for a year.

Bernanke, together with European Central Bank president Jean-Claude Trichet and the governor of the Bank of Japan, Toshihiko Fukui, warned many threats remained to the stability of the global financial system.

“The present state of global finance ... is not necessarily sustainable in the long run,” Trichet told the conference, also via satellite.

“It seems to me we must continue to be very vigilant of the risks. Complacency would be the worst possible advice.”

Fukui said the world must remain mindful of potential overheating of the Chinese economy and the global effects this could have.

Also, rising oil prices posed a continuing threat to the purchasing power of oil importing countries and to world inflation.

In his address, Bernanke said the housing market, which entered a downturn last year, remained in a trough.

“More recent readings indicate that (housing) demand weakened further, on net, over the first four months of the year,” he said, adding that “for the most part outright price declines have been concentrated in markets that showed especially large increases in earlier years.”

The Fed chairman said home building would likely remain “subdued for a time” until the glut of unsold new homes swamping the market had eased.

He said the Fed and other government agencies were vying to help improve the situation and the wider housing landscape for stretched homeowners.

The Fed is urging banks and other lenders to work with borrowers struggling to meet their mortgage repayments as home repossessions mount.

Bernanke said the Fed was also working closely with other regulators and Congress to consider ways of preventing a repeat of the problems currently plaguing the housing market.

Congressional investigators have found that many borrowers were enticed to take out interest-only loans without realising their mortgage repayments would spike dramatically when the initial terms on such “teaser” loans were reset.

“We have an obligation to prevent fraud and abusive lending; at the same time, we must tread carefully so as not to suppress responsible lending or eliminate refinancing opportunities for sub-prime borrowers,” the Fed chief said, referring in part to loans offered to consumers with poor credit histories.—AFP