Fed Chairman Bernanke says U.S. Economy likely to slow in 4th quarter.

November 8, 2007 - Forex Economic News

Federal Reserve Chairman Ben Bernanke provided his economic outlook before the Congressional Joint Economic Committee today and said the US economy will likely slowdown in the 4th quarter due to continuing mortgage market problems and tightening credit standards. In testimony that was heavily weighted towards the mortgage market strain, Bernanke said that despite solid 3.9% growth rate in the 3rd quarter, "the Committee expected that the growth of economic activity would slow noticeably in the fourth quarter", noting that "the market for nonconforming mortgages remained significantly impaired, and survey information suggested that banks had tightened terms and standards for a range of credit products over recent months." Also, look for more of the same into 2008, "Growth was seen as remaining sluggish during the first part of next year, then strengthening as the effects of tighter credit and the housing correction began to wane." Despite slower growth predictions, the Fed did say that since the October 31st Federal Open Market Committee, "the few data releases that have become available have continued to suggest that the overall economy remained resilient in recent months."

Some other notable highlights of his testimony.

- "On preliminary estimates, real gross domestic product (GDP) grew at an average pace of nearly 4 percent over the second and third quarters despite the ongoing correction in the housing market."

- "Core inflation has improved modestly, although recent increases in energy prices will likely lead overall inflation to rise for a time."

- Bernanke on the Mortgage Strains, "on average from now until the end of next year, nearly 450,000 subprime mortgages per quarter are scheduled to undergo their first interest rate reset. Relative to past years, avoiding the payment shock of an interest rate reset by refinancing the mortgage will be much more difficult, as home prices have flattened out or declined, thereby reducing homeowners' equity, and lending terms have tightened."

- "Home losses through foreclosure can be reduced if financial institutions work with borrowers who are having difficulty meeting their mortgage payment obligations."

Full testimony here.

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