February 29, 2008	Friday	Safar 21, 1429

WASHINGTON, Feb 28: Despite rising inflation and soft economic conditions, the US economy is nowhere near the “stagflation” scenario of the 1970s, Federal Reserve chairman Ben Bernanke said on Thursday.

“I don’t anticipate stagflation. I don’t think we’re anywhere near the situation that prevailed in the 1970s,” Bernanke told the Senate banking committee as he testified for a second day in Congress on the central bank’s semi-annual forecast.

Stagflation reached a peak in the 1970s in the United States when unemployment soared and the economy remained sluggish even as inflation reached double digits.

Bernanke said the economy currently is facing a series of problems which complicates the Fed’s task of bolstering growth. He said the problems are different from the downturn in 2001 in that consumers are bearing the brunt of the crisis now.

“The effects of the stock market decline in 2001 were primarily on investment firms and not on consumers,” Bernanke said. “Now consumers are taking the brunt.”

Bernanke delivered the same report he gave to the House of Representatives on Wednesday, but offered new comments in response to questions from senators.

“We are facing a situation where we have simultaneously a slowdown in the economy, stress in the financial markets and inflation pressure coming from these commodity prices abroad,” Bernanke said.

“Each of those things represents a challenge. We have to make our policy in trying to balance these different risks in a way that will get the best possible outcome for the American economy.”

Bernanke said he expected “some bank failures” as a result of the widening problems in real estate and related financial instruments.

But he said he did not foresee a crisis in the banking sector.

“Among the largest banks, the capital ratios remain good,” he said.

“And I don’t anticipate any serious problems of that sort among the large internationally active banks that make up a very substantial part of our banking system.”—AFP