Federal Reserve Chairman Ben Bernanke predicted today the US 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 per cent pace. It was the worst quarterly showing in more than four years.
However, Mr Bernanke said he believes some of the forces in that poor performance - including a bloated trade deficit, cutbacks by businesses in inventory investment and weak federal defence spending - "seem likely to be at least partially reversed in the near term".
Mr Bernanke 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."
Some economists put the economy's trend, or normal growth rate at around 3 to 3.25 per cent.
Even with Mr Bernanke's hopeful outlook, the Fed chief conceded that the residential real-estate slump, which started last year, "appears likely to remain a drag on economic growth for somewhat longer than previously expected".
On the inflation front, Mr Bernanke said that underlying inflation, which excludes food and energy prices, still remains "somewhat elevated" despite some improvements.