US Federal Reserve chairman Ben Bernanke said Tuesday the world's biggest economy was likely to improve to a "moderate" pace in future months following a pronounced slowdown at the start of the year.
As a result, US economic growth would be near to or just below its typical clip, America's top central banker told a meeting of the International Monetary Conference in Cape Town.
"On average, over coming quarters, we expect the economy to advance at a moderate pace, close to or slightly below the economy's trend rate of expansion," Bernanke said via satellite. The Fed chief cautioned, however, that the shakeout in the US housing market was continuing and said the central bank was keeping a laser-like focus on potential inflationary pressures.
"The adjustment in the housing sector is still ongoing, and the slowdown in residential construction now appears likely to remain a drag on economic growth for somewhat longer than previously expected," Bernanke said.
US economic growth slowed to a crawling 0.6 percent during the first three months of the year, in part due to the lingering slump affecting the housing market. And he said this suggested higher inflation pressures. "Although core inflation seems likely to moderate gradually over time, the risks to this forecast remain to the upside," Bernanke said.
The Fed has been reluctant in the past year to lower interest rates, which could offer relief to hard-press homeowners, for fears of stoking inflation. The Fed funds interest rate has been anchored at 5.25 percent for a year.
Bernanke, together with European Central Bank president Jean-Claude Trichet and the governor of the Bank of Japan, Toshihiko Fukui, warned many threats remained to the stability of the global financial system. "The present state of global finance ... is not necessarily sustainable in the long run," Trichet told the conference, also via satellite. "It seems to me we must continue to be very vigilant of the risks. Complacency would be the worst possible advice."
Fukui said the world must remain mindful of potential overheating of the Chinese economy and the global effects this could have. In his address, Bernanke said the housing market, which entered a downturn last year, remained in a trough.