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Bernanke: Fed Rate Hikes May Pause
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That would be the 16th consecutive quarter-percentage-point increase in the federal funds rate, the interest rate charged on overnight loans between banks, since June 2004, when it was 1 percent.
Bernanke also said he expects the economy to slow in coming months, in part because the housing market "will most likely experience a gradual cooling rather than a sharp slowdown."
But one reason several Fed officials want to pause after the next rate hike is their concern that housing might fall off more steeply than forecast, causing the economy to weaken more than expected.
"Significant uncertainty attends the outlook for housing, and the risk exists that a slowdown more pronounced than we currently expect could prove a drag on growth this year and next," Bernanke told the committee.
Higher interest rates restrain inflation by making it harder for consumers and businesses to borrow and spend, dampening demand and slowing price increases. Interest rates have been rising on credit cards, auto loans, adjustable-rate mortgages and home-equity lines of credit. Meanwhile, rates on long-term, fixed-rate mortgages, which are determined by global markets, have risen recently, as well, but remain low by historical standards.
Fed officials could leave their benchmark rate at 5 percent through the summer while they watch to see how the housing slowdown plays out.
But some Fed policymakers remain more worried about the risk of higher inflation than the risk of an economic slump and believe they may have to lift the benchmark rate above 5 percent.
If housing doesn't soften much and inflation moves higher, they could continue raising the rate through the summer to 5.5 percent or higher and pause later in the year.
