U.S. Federal Reserve Chairman Ben Bernanke told Congress Wednesday that the U.S. economy has emerged from a period of weakness but cautioned that overall growth this year will fall short of predictions because of inflation concerns. Delivering a midyear economic report, Bernanke said the economy is likely to expand “at a moderate pace” during the second half of the year. But, his testimony before the House of Representatives Financial Services Committee also warned that growth will be slightly slower that February predictions, with current projections suggesting stronger growth next year. The inflation forecast remains unchanged, with an expectation that non-food and energy prices will fall slightly. The testimony seemed likely to mean that the Fed will leave interest rates at 5.25 percent, where they have been for over a year. For the two years before that, rates were increased to fend off inflation. Bernanke's cautious tone seemed to worry Wall Street, where stocks fell as the Fed Chairman described the possibility that energy and commodity prices would continue to rise sharply, resulting in a knock-on price rise and inflation. Overall consumer prices evened somewhat in June, the government reported Wednesday. They rose by just 0.2 percent - the smallest increase in five months, though gasoline prices continue to rise. Bernanke also warned that the troubled housing market could have a greater effect that expected, causing reduced consumer spending and possibly causing overall economic growth to be weaker. The housing slump has been blamed as the primary reason for the economy's slow first quarter growth. But other factors contributing to the sluggish economy are showing signs of improvement, leading Bernanke to suggest the economy could grow close to 3 percent in the April-to-June quarter. The government's estimate of second-quarter growth will be released later this month. In new economic projections, the Fed predicted the economy will grow between 2.25 and 2.50 percent, as measured from the fourth quarter of last year to the fourth quarter of this year. The figure is lower than the old forecast of 2.5 percent and 3 percent. For 2008, the Fed predicts the economy should expand between 2.50 and 2.75 percent, with “core” inflation rising between 2 percent and 2.25 percent this year. Core inflation excludes energy and food.
