Bernanke: Baby Boomers Will Strain U.S.

Federal Reserve Chairman Ben Bernanke addresses the Economics Club of Washington in Washington, Wednesday, Oct. 4, 2006. (AP Photo/J. Scott Applewhite) (J. Scott Applewhite - AP)

Joel Prakken, chairman of Macroeconomic Advisers, said he welcomed the Fed chief's message, even if it's not new.

"I don't believe Bernanke is telling anybody in my profession something we don't know. The federal government has on the table essentially unsustainable promises to the aging population," Prakken said.

Bernanke did not discuss the future path that interest rates might take in his speech or his brief remarks afterward.

Fielding questions, Bernanke said a "substantial correction" was taking place in the housing market. He estimated the housing slowdown would trim about 1 percentage point off economic growth in the second half of this year.

But the fallout from the cooler housing market should be cushioned by other positive factors, including good job creation and income growth, Bernanke added.

The housing cooldown, after a five-year boom, holds important implications for consumer spending and overall economic activity. "How far will this correction go? It is very difficult to tell, is the honest answer," Bernanke said.

The Federal Reserve's next meeting is scheduled for Oct. 24-25. Many economists believe the policymakers will leave rates unchanged for the third meeting in a row.

With the economy slowing, the central bank in August decided to halt _ for the first time _ a two-year campaign to boost interest rates to fend off inflation. Policymakers suggested the cooling economy eventually would lessen inflation pressures.

Fed Vice Chairman Donald Kohn, in separate remarks Wednesday evening in New York, expressed hope that the economy would slow sufficiently to ease inflation but not so much as to fall into a recession. "I expect that the continuing adjustment will be relatively benign overall," he said.

There has been relief on the inflation front as once-surging energy prices settled down. Gasoline prices, which topped $3 a gallon in summer, slid and now average $2.31 a gallon, the Energy Department said.

Bernanke welcomed the recent drop in energy prices, but said that Fed policymakers will keep an eye on inflation, which "is still above what we would consider price stability."

Bernanke also said he and his colleagues would try to improve the central bank's communications to Wall Street and Main Street. Bernanke, a respected economist who spent much of his professional life in academia, took over the Fed from longtime chairman Alan Greenspan in February.

"It is a sobering experience," Bernanke said of his eight months on the job.

___

On the Net:

Federal Reserve: http://www.federalreserve.gov/