Bernanke: Tighter mortgage standards<br> likely to prolong housing slump

WASHINGTON – “Tighter” mortgage standards in the wake of the subprime meltdown are likely to dampen the housing market for longer than policymakers had anticipated, Federal Reserve Chairman Ben S. Bernanke said in a speech via satellite to a conference in Cape Town, South Africa, according to Bloomberg News.
“The slowdown in residential construction now appears likely to remain a drag on economic growth for somewhat longer than previously expected,” he told the International Monetary Conference. Tighter credit for subprime borrowers will “restrain housing demand,” Bernanke said, “although the magnitude of these effects is difficult to quantify.”
The slump in residential investment shaved almost a percentage point from the nation’s economic growth in the first quarter, Bloomberg News said, noting that housing construction has fallen for six straight quarters and new building permits fell in April to the lowest level in nearly a decade.
But the Fed chief continued to forecast moderate growth for the broader economy. “We have also seen a gradual ebbing of core inflation, although its level remains somewhat elevated,” Bernanke told the conference. “Although core inflation seems likely to moderate gradually over time, the risks to this forecast remain to the upside.”