Federal Reserve chairman Ben Bernanke has said the US economy is likely to improve to a 'moderate' pace in future months following a slowdown at the start of the year.
America's top central banker said US economic growth, as a result, would be near to or just below its average, according to a text of a speech delivered by Bernanke to a meeting of the International Monetary Conference in Cape Town, South Africa.
The Fed chief warned, however, that the shake-out in the US housing market was still persisting and that the Fed was closely watching 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 an annual rate of 0.6% during the first three months of the year, in part due to the lingering slump affecting the housing market. Bernanke said this suggested higher inflation pressures.
The Fed has been reluctant to lower interest rates in the past year, which could in theory offer relief to hard-pressed homeowners, for fears of stoking inflation. The Fed's main rate has been anchored at 5.25% for a year.
Bernanke said that the housing market, which entered a downturn last year, still remained in a trough. The Fed chairman said that home building was likely to remain 'subdued for a time' and until the glut of unsold new homes swamping the market had eased.
He said that the Fed and other government agencies were trying to help improve the situation and the wider housing landscape for homeowners. Bernanke said the Fed was also working closely with other regulators and Congress to review what actions might be needed to prevent 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 not realising that their mortgage repayments would spike dramatically when the initial terms on such 'teaser' loans were reset. Bernanke said the Fed's staff were reviewing whether further lending protections might be needed for homeowners.
Meanwhile, the Institute of Supply Management said its survey of economic activity in the US services sector rose by more than anticipated. The ISM index increased to 59.7, suggesting robust growth in the sector which makes up the lion's share of US economic output.
