Bernanke Says U.S. Economy May Contract `Slightly' (Scott Lanman)

Created by : Francis Goodwin View profile

April 2 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke acknowledged for the first time that the economy may contract as homebuilding weakens further, unemployment rises and consumer spending slumps.

``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,'' Bernanke said in testimony to Congress's Joint Economic Committee today. He also told lawmakers the Fed's agreement to provide an emergency loan to Bear Stearns Cos. followed a March 13 warning by the company that it ``would have to file for Chapter 11 bankruptcy the next day.''

Bernanke, making his first extensive public comments since the Fed's decisions two weeks ago to back the takeover of Bear Stearns and lower interest rates by 0.75 percentage point, is trying to fend off criticism of the rescue while aiming to prevent a deeper economic contraction.

While the Fed expects the economy to return to its long- term growth pace in 2009, ``in light of the recent turbulence in financial markets, the uncertainty attending this forecast is quite high and the risks remain to the downside,'' he said.