Will the real estate meltdown drag down the economy for a long time?
*Bloomberg, by Craig Torres, June 5, 2007
“Federal Reserve Chairman Ben S. Bernanke said “tighter” lending standards for mortgages will “restrain”‘ housing demand for longer than policy makers anticipated.
The Fed chairman said the housing slump hasn’t spilled over into other parts of the economy and he maintained a forecast for “moderate” growth. Government and industry reports this month showed acceleration in job growth, manufacturing and personal spending and gains in services industries.
“The slowdown in residential construction now appears likely to remain a drag on economic growth for somewhat longer than previously expected,” Bernanke said in remarks via satellite to a conference in Cape Town, South Africa. As subprime mortgage lenders make it tougher to get loans, that will “restrain housing demand, although the magnitude of these effects is difficult to quantify,” he said.
Fed officials have repeatedly cited housing as a threat to their forecast for faster growth this year. At the same time, they continue to view inflation as the biggest risk, keeping interest rates unchanged since last raising them a year ago.
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