WASHINGTON
(Reuters) - The U.S. economy could contract in the first half of this
year but should then pick up as aggressive interest rate cuts stimulate
growth and financial and housing market woes recede, Federal Reserve
Chairman Ben Bernanke said on Wednesday.
"It now appears likely that real gross domestic product will not
grow much, if at all, over the first half of 2008 and could even
contract slightly," he said in remarks prepared for delivery to the
congressional Joint Economic Committee.
"We expect economic activity to strengthen in the second half of the
year, in part as the result of stimulative monetary and fiscal
policies; and growth is expected to proceed at or a little above its
sustainable pace in 2009," he added.
The central bank chief appears before Congress slightly more than
two weeks after the Fed provided emergency funding to prevent the
failure of troubled investment bank Bear Stearns, which he said could
have caused a "chaotic" market reaction that would have been difficult
to contain.
Bernanke said financial markets remain under considerable strain but
emergency liquidity measures have been helpful in alleviating some of
the stresses. Funding pressures on large financial institutions seem to
have eased somewhat, and some markets, including the key market for
agency mortgage-backed securities, appear to be more liquid.
"Much necessary economic and financial adjustment has already taken
place, and monetary and fiscal policies are in train that should
support a return to growth in the second half of this year and next
year," he said. "I remain confident in our economy's long-term
prospects."
(Reporting by Mark Felsenthal and Alister Bull; Editing by James Dalgleish)
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