WASHINGTON --- Federal Reserve Chairman Ben Bernanke said Thursday that economic growth will slow noticeably in coming months while surging oil costs will raise inflation pressures. But he said the economy is nowhere close to the stagflation nightmare of the 1970s and he predicted an economic rebound by mid-2008.
Testifying before the Joint Economic Committee, Mr. Bernanke acknowledged a host of problems facing the economy, from a deeper-than-expected housing slump to a lingering credit crunch and now sharply rising oil prices and a falling value of the dollar, both of which increase inflation threats.
Mr. Bernanke stressed that the central bank, which has cut a key interest rate twice over the past two months, was closely watching developments and would be prepared to respond as needed. However, he stressed that the central bank believes economic risks are roughly balanced at present between the threat of weaker growth and higher inflation.
That was the stance the Fed took last week when it trimmed its federal funds rate, the interest banks charge each other, by a quarter-point to 4.5 percent following a bolder half-point cut in September.
The Fed sent a clear signal that last week's rate cut may be all that is needed, a disclosure that sent financial markets into a slump that has deepened as a number of corporate giants have announced huge losses in recent days.
Many analysts said they were still looking for the central bank to cut rates again in December or January, because they believe the economy will have slowed so much by that time that the Fed will need to boost activity to prevent a recession.