(Adds analyst comments)
By Ed Stoddard
DALLAS, April 7 The U.S. economy still faces
significant headwinds, including a housing sector that has yet
to recover convincingly and an ailing employment market,
Federal Reserve Chairman Ben Bernanke said on Wednesday.
In a speech that suggested the central bank chief was in no
rush to begin raising interest rates, Bernanke outlined a
number of challenges to the country's growth outlook.
"Many Americans are still grappling with unemployment or
foreclosure, or both," Bernanke said in prepared remarks to the
Dallas Regional Chamber of Commerce. "We are far from being out
of the woods.
In particular, Bernanke flagged continuing weakness in
housing as a danger to the recovery, which he nonetheless said
would be sustainable enough to bring down the unemployment rate
slowly over time.
"We have yet to see evidence of a sustained recovery in the
housing market," he said.
Against that backdrop, the Fed chairman saw no immediate
reason to be worried about inflation, which he characterized as
In addition, inflation expectations, which Fed officials
have singled out as a crucial guidepost for policy, appear to
be stable, Bernanke said, both as measured by market indicators
"Several comments by Bernanke reinforce the sense that he
does not favor policy tightening given the challenges facing an
economy operating well below its potential," Goldman Sachs' New
York-based U.S. economists wrote in a research note.
In response to the worst financial crisis since the Great
Depression, the Fed slashed interest rates close to zero and
undertook a host of emergency measures in an effort to thaw
frozen credit markets.
Some investors are betting the central bank could begin
tightening policy in the second half of this year. Others
believe lingering economic fragility will keep the Fed on hold
until at least 2011.
Bernanke said the Fed's ability to prevent future crises
will hinge in part on the development of a resolution authority
that would allow regulators to break up or wind down large
financial institutions that run into trouble in an orderly
He said the Fed had already made significant changes to its
regulatory approach to reflect lessons learned from the