Bernanke expects economy will rebound in months ahead

WASHINGTON — Federal Reserve Chairman Ben Bernanke predicted Tuesday the economy will rebound from an anemic performance at the start of the year even if the housing slump continues.

Economic growth in the first three months of this year nearly stalled, logging just a 0.6 percent pace. It was the worst quarterly showing in more than four years.

However, Bernanke said he believes some of the forces that figured prominently in that poor performance — including a bloated trade deficit, cutbacks by businesses in inventory investment and weak federal defense spending — "seem likely to be at least partially reversed in the near term."

Bernanke made his comments via satellite to an international monetary conference in Cape Town, South Africa. In his talk, he stuck to the Fed's forecast that the economy in coming quarters will advance "at a moderate pace, close to or slightly below the economy's trend rate of expansion." A copy of his prepared remarks was made available in Washington.

Some economists put the economy's trend, or normal growth rate at around 3 to 3.25 percent.

On Wall Street, stocks fell as investors took Bernanke's remarks to suggest the Federal Reserve has little reason to lower interest rates any time soon. The Dow Jones industrials were down around 60 points in morning trading.

The Fed meets next on June 27-28 and many economists predict that policymakers will again hold a key interest rate steady at 5.25 percent, where it has been for a year.

Even with Bernanke's hopeful outlook, the Fed chief did make clear once again that the painful residential real-estate bust, which started last year, "appears likely to remain a drag on economic growth for somewhat longer than previously expected," he said.

Residential construction will likely remain "subdued for a time" until builders can pare down a backlog of unsold new homes, he noted.

But, thus far, the problems in the housing market haven't spread through the broader economy in a significant way, Bernanke said. "We have not seen major spillovers from housing onto other sectors of the economy," he observed.

On the inflation front, Bernanke said that underlying inflation, which excludes food and energy prices, still remains "somewhat elevated" despite some improvements. Bernanke again clung to the Fed's forecast that underlying inflation seems likely to moderate gradually over time. Still, he said, there is a big risk to the economy is if this forecast doesn't materialize.