Federal Reserve chairman Ben Bernanke has said he sees 'sluggish' US economic activity into the first part of 2008 as mortgage and credit problems hit consumers and business.
Speaking to the Joint Economic Committee of Congress, Bernanke said the central bank believed that the 3.9% growth rate reported for the third quarter of this year was unlikely to be sustained in view of the deep property slump which has spread to the mortgage finance sector.
The Fed decided last month to cut interest rates because they 'expected that the growth of economic activity would slow noticeably in the fourth quarter,' he said.
Bernanke's comments were in line with predictions from many private economists who see a darker economic picture despite a strong growth rate in the second and third quarters.
The Fed chief said the reduction in housing-related activity 'seemed likely to intensify' because of tighter credit, and that consumer spending was likely to grow more slowly in view of higher energy prices, tighter credit, and continuing weakness in housing.
Additionally, Bernanke said the risks to the outlook were to the downside, with a potential for even further tightening of credit that could slow the economy. And he said the spike in energy costs could spark higher overall inflation.
The Fed cuts its main interest rate by quarter-point to 4.5% on October 31, following a half-point cut in September.
