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Strategies & Market Trends : The New Economy and its Winners -- Ignore unavailable to you. Want to Upgrade?

To: Lizzie Tudor who wrote (27525)	2/16/2006 2:14:22 PM
From: stockman_scott	Read Replies (1) \| Respond to of 57684

Bernanke Predicts 'Significant' Economic Rebound (Update1) Last Updated: February 16, 2006 13:06 EST (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke, in his second day of testimony to Congress, said the U.S. economy will show a ``significant'' recovery from the slowest fourth quarter in three years. ``It appears that the first quarter will see a significant rebound from the fourth quarter, and likely productivity will come back with it,'' Bernanke told the Senate Banking Committee in response to a question. Economists raised their forecasts for economic growth after retail sales last month increased the most since May 2004. Prospects for growth are also being buoyed by the lowest jobless rate in more than four years and a continued expansion in manufacturing. Financial markets barely skipped a beat during Bernanke's remarks to legislators, two weeks after taking the helm of the world's most powerful central bank from Alan Greenspan. The yield on two-year U.S. Treasury notes held close to a five year high while the dollar was little changed against the euro and yen. The Standard & Poor's 500 Index rose 0.4 percent at 12:23 p.m. in New York to 1285.88. The Fed lifted its target rate 14 times since June 2004, bring it to the current 4.5 percent. Bernanke said in the first day of testimony yesterday that he concurred with the view expressed at the last rate decision that further increases may be necessary. Pressure on China Bernanke joined Treasury Secretary John Snow in calling for China to let its currency, the yuan, trade more freely. The Treasury must decide by the end of April whether to brand a China a currency manipulator, something the department hasn't done since 1994. ``China ought to move toward a more flexible exchange rate,'' Bernanke said in response to a question by Charles Schumer, a Democrat from New York who is sponsoring a bill that would impose tariffs on China if the yuan isn't allowed to appreciate at a faster pace. The new Fed chairman said he appreciated Schumer's frustration with China. ``They see some benefits in what they view as stability,'' Bernanke said when asked why the yuan hasn't fluctuated much since it was revalued 2.1 percent in July. ``They see an advantage in exports of keeping their exchange rate where it is.'' `Open Trade' He didn't offer any support to Schumer's proposal to erect trade barriers. ``It's not a good idea to break down some of the gains we've made in terms of free and open trade in the world economy.'' Exports helped China's economy double in size in the past decade, vaulting it ahead of the U.K. last quarter to become the world's fourth largest. Exports also swelled the U.S. trade deficit with China to a record $201.6 billion, spurring calls for sanctions among legislators who say the government is keeping the yuan artificially weak. Bernanke, 52, succeeded Alan Greenspan, who ran the central bank for almost two decades. The transition occurred with the economy in its fifth year of expansion, and with the jobless rate at 4.7 percent in January, the lowest in more than four years. The government reported on Feb. 14 that retail sales rose 2.3 percent in January, the fifth straight monthly increase. Traders in federal funds futures contracts are pricing in almost a 100 percent probability that the U.S. central bank will raise interest rates March 28, at Bernanke's first meeting as chairman of the Fed's rate-setting Open Market Committee. A report today showed manufacturing in the Philadelphia area accelerated this month, another sign the economy is gathering momentum. The Fed Bank of Philadelphia's general economic index rose to 15.4, the highest since August, from 3.3 in January. Construction began on homes at an annual rate of 2.276 million, the most in more than three decades. To contact the reporter on this story: Craig Torres in Washington at ctorres3@bloomberg.net