Federal Reserve Chairman Ben Bernanke told Congress on Wednesday a sharp slide in stock markets a day earlier has not changed the Fed's outlook for moderate U.S. growth.
"My view is that taking all the new data into account, that there is really no material change in our expectations for the U.S. economy since I last reported to Congress a couple weeks ago," Bernanke said in response to questions from the House Budget Committee.
Bernanke also said he didn't see any "single trigger" for the pullback in global markets on Tuesday, which saw the Dow Jones industrial average plunge by 416.02 points.
Bernanke said that the Fed along with the president's working group, which was formed in the wake of the 1987 stock market crash, had been closely monitoring market developments. He said that the markets "seem to be working well."
"We are looking for moderate growth in the U.S. economy going forward," Bernanke said. He said that if current corrections under way in housing and the amount of inventories being held by business stabilize in coming months, the economy should begin to rebound from its current slowdown by the end of the year.
Bernanke's comments on the stock market decline occurred at a hearing where he delivered virtually identical warnings about the need to deal with looming budget problems in the government's giant benefit programs of Social Security, Medicare and Medicaid.
The market decline on Tuesday was triggered by a steep fall in stock prices on China's Shanghai market, which triggered big declines in other stock markets around the world. It represented the biggest stock market turmoil that has occurred since Bernanke took over as Fed chairman on Feb. 1, 2006, succeeding Alan Greenspan.
At the White House Wednesday, press secretary Tony Snow said that President Bush had called Treasury Secretary Henry Paulson to get a readout on the stock market plunge. Asked what advice the president would give to investors, Snow said: "The president does not give advice to investors in the stock market."
Greenspan, speaking by satellite to an audience in Hong Kong on Sunday night, had said that the current five-year-old economic expansion was beginning to show early signs of the types of imbalances that could lead to a recession. He said it was possible the U.S. could be in a recession by the end of this year, although he noted that most private forecasters did not consider that a likely outcome.
Greenspan's comments and the steep drop in the Shanghai market raised worries that investors needed to focus more on the risks facing the global economy.
Bernnake said that he did not think it would be useful to try to single out the various factors that contributed to Tuesday's market decline.
No Sign Of Liquidity Problems
Separately, Bernanke indicated the U.S. central bank has some concerns about the domestic subprime mortgage market and is monitoring it closely.
"Our assessment is that there's not much indication that subprime mortgage issues have spread into other mortgage markets," Bernanke said.
When asked by one lawmaker whether a liquidity crunch was what roiled Tuesday's global equity market, Bernanke replied: "No, I don't think so."
He also said there appears to be a weaker link between inflation risks and unemployment than in the past and that policy-makers need to gauge a wide variety of factors including commodity prices in assessing inflation.
Bernanke also said it is possible an explicit inflation target could become part of the Fed's communications strategy.
Meanwhile, Bernanke said Flat U.S. house prices might discourage homeowners from counting their properties as savings tools and so develop other savings plans.
Homeowners have lately seen their homes as investments and that is partly why "current savings out of current income is low," Bernanke said.
Appreciating home values and stock gains are "not counted as part of the national savings rate," he said. As home values flatten, Bernanke said, many homeowners will be less able to extract wealth from their homes and so "current income may rise a bit over the next couple of years."