Originally created 11/29/06

Risks remain for economy, Fed chief says



WASHINGTON - Federal Reserve Chairman Ben Bernanke said Tuesday that risks from inflation or a worse-than-expected housing slump could further complicate things for an economy already in slowdown mode.

"The deceleration in economic activity currently under way appears to be taking place roughly along the lines envisioned," Mr. Bernanke said in his most extensive comments on the economy since the summer. The slowdown in overall activity mostly reflects the housing slump, he said.

As the economy cools, inflation also should continue to ease gradually over the next year or so, the Fed chief added.

Yet, "substantial uncertainties" surround the Fed's outlook, Mr. Bernanke said in prepared remarks to the National Italian American Foundation in New York.

The slowdown in the once-sizzling housing market could turn out to be deeper than expected, putting an even greater drag on overall economic activity. Or, Mr. Bernanke surmised, economic growth could rebound more strongly than expected, which could lead to a flare-up in inflation.

"A failure of inflation to moderate as expected would be especially troublesome," he said.

Overall inflation has showed signs of improving in recent months as once-surging energy prices have calmed down. However, "core" prices - which exclude energy and food and are closely watched by the Fed - still remain "uncomfortably high," Mr. Bernanke said. Looking ahead, he said he expects those core prices to moderate gradually over the next year or so.

But he made clear the Fed will be keep a close eye on the matter, especially on labor costs, which can spark inflation if they grow rapidly.

IN AUGUSTA


Although residential construction is slowing nationally, the value of contracts for future construction is up 9 percent in the Augusta-Aiken metro area on a year-to-date basis through the end of October.

TYPE OF
BUILDING
JAN. 1 TO
OCT. 31, 2005
JAN. 1 TO
OCT. 31, 2006
CHANGE
IN PERCENT
Nonresidential $193 million $254.1 million 32 percent
Residential* $584.6 million $591.8 million 1 percent
Total $777.6 million $845.9 million 9 percent

* Includes duplexes and apartment buildings.


Source: McGraw Hill Construction