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Markets 'Working Well,' Says Fed Chief
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A slowdown in the West could have a severe impact on China's economy since it relies heavily on exports to the United States, other economists said.
"Over the longer term there is a question of how long the United States can run massive foreign-account deficits that are funded by the willingness of the Chinese to produce a lot and not consume as much as they produce," said Richard F. Syron, chairman and chief executive of Freddie Mac.
Others said they are monitoring whether the U.S. housing slump cools consumer spending. Of particular concern is whether the easy availability of "cheap debt," which has fueled record-topping leveraged buyouts on Wall Street and riskier mortgage lending, is coming to an end.
The new-home sales report also fed fears of more market turbulence. Investors have grown jittery in recent weeks as the rate of delinquencies and defaults on high-risk mortgage loans have climbed, raising the prospect that lenders will tighten credit.
But Bernanke said that the central bank sees "no indication" that the turmoil in the market for riskier loans to home buyers with poor credit histories is spreading into other financial markets or affecting the housing market yet.
He said the Fed is "monitoring that situation closely," and added, "I don't see it as a broad financial concern."
To some analysts, the home-sales report boosted the odds that the housing downturn would be a bigger drag on the economy this year than the Fed expects, possibly raising unemployment and rippling through other industries.
More optimistic analysts noted that the report followed one on Tuesday that showed sales of previously owned homes, which account for 85 percent of the market, rose 3 percent in January, possibly signaling a stabilizing of the housing market.
Bernanke said that if housing does stabilize and manufacturers such as automakers work off their excess inventories, "there's a reasonable possibility that we'll see some strengthening of the economy sometime during the middle of the year."
