US growth will improve next year: Bernanke

The world`s largest economy is still on track to expand at a moderate pace over the next year without slowing too much, says chairman of the Federal Reserve

The US economy, which has seen some moderation in its growth over the past couple of quarters, is likely to pick up pace next year, Federal Reserve Chairman Ben S. Bernanke said on Tuesday.

In a speech delivered at the National Italian American Foundation in New York, Bernanke said that the world's largest economy is still on track to expand at a moderate pace over the next year without slowing too much.

"Economic growth will be modestly below trend in the near term, and over the coming year will return to a rate that is roughly in line with the growth rate of the economy's underlying productive capacity," he said in his first speech on the US economy in four months.

Bernanke said some slowing of growth was welcome at this stage of the expansion if the economy is to be sustained without a buildup in inflationary pressures.
Excluding the ailing housing and auto sectors, "economic activity has, on balance, been expanding at a solid pace," he said.

But, the Fed chief acknowledged that inflation still continues to be the major risk to the US economy. Bernanke said inflation is likely to continue to moderate gradually over the next year.

The Fed chairman said that although readings on the core inflation rate have improved modestly since the spring, core inflation nevertheless remains uncomfortably high. "Given the current level of inflation, a failure of inflation to moderate as expected would be especially troublesome," Bernanke said.

Bernanke said that whether further policy action against inflation will be required depends on the incoming data, and in particular how these data affect the FOMC's medium-term forecasts. The Fed chairman said he is watching rising labor costs carefully for signs that employers are passing them on to customers.

The Fed chairman said that the effects of the housing market correction will persist into next year, but said that the rate of decline in home construction should slow as the inventory of unsold new homes is gradually worked down.