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Bernanke ‘upbeat’ US will avoid recession

He tells lawmakers the economy may pick up dramatically

(WASHINGTON) US Federal Reserve chairman Ben Bernanke voiced optimism in a closed-door meeting with Republican lawmakers on Tuesday that the United States would avoid slipping into a recession, Senator Charles Grassley said.

‘He was very upbeat about our not going into recession,’ the Iowa Republican said in an interview on Bloomberg Television.

Mr Grassley said Mr Bernanke expects the economy ‘to pick up pretty dramatically’ after growing slowly in the first half of this year. The Fed chairman called the economic stimulus package passed by Congress ‘helpful’ and indicated he’s willing to cut rates further if necessary to aid the economy, Mr Grassley added.

‘I got the sense that he’s ready to move if he needs to move,’ Mr Grassley said, adding that a rise in inflation may not be sharp enough to prevent additional rate reductions.

‘Inflation did come up and it’s going to be a little bit higher than what they like,’ Mr Grassley said. ‘But they believe that it’s nothing that’s going to stop their decreasing interest rates if they need to be decreased.’

Senator Richard Shelby of Alabama, the senior Republican on that committee, described Mr Bernanke as ‘optimistic but guarded’ in Tuesday’s meeting.

Another Senator said Mr Bernanke expects the downtrodden US housing sector to improve by the end of the year.

‘He let us believe that the housing situation should begin to ameliorate by the end of the year,’ said Pete Domenici, a New Mexico Republican.

Homeowners in the US threatened with foreclosure would in some instances get a 30-day reprieve under an initiative the Bush administration announced on Tuesday.

Dubbed ‘Project Lifeline’, the programme will be available to people who have taken out all types of mortgages, not just the high-cost sub-prime loans that have been the focus of previous relief efforts and have contributed to a decline in the US economy.

The programme was put together by six of the largest US financial institutions, which service almost 50 per cent of the mortgages in the US.

These lenders say they will contact homeowners who are 90 or more days overdue on their monthly mortgage payments. The homeowners will be given the opportunity to put the foreclosure process on pause for 30 days while the lenders try to work out a way to make the mortgage more affordable to homeowners.

‘Project Lifeline is a valuable response, literally a lifeline, for people on the brink of the final steps in foreclosure,’ Housing and Urban Development Secretary Alphonso Jackson said at a joint news conference with Treasury Secretary Henry Paulson.

He said the goal was to provide a temporary pause in the foreclosure process ‘long enough to find a way out’ by letting homeowners and lenders negotiate a more affordable mortgage.

 

Source: Bloomberg, Reuters, AP (Business Times 14 Feb 08)

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