Fed Chairman Optimistic About Economy

WASHINGTON (AP) -- Federal Reserve Chairman Ben Bernanke told Congress Wednesday that the economy should grow modestly this year despite lingering pain from a housing slump and he stuck to the Fed's forecast that inflation will continue to ebb.

Still, Bernanke wasn't prepared to declare victory and close the door on the possibility of further interest rate increases. Even with recent improvements in "core" or underlying inflation, the situation remains "somewhat elevated," he said. Core inflation excludes the more volatile categories of energy and food.

Bernanke, delivering the Fed's first economic report for 2007 to Capitol Hill, offered a mostly upbeat assessment of the economy's outlook. Besides improvements on the inflation front, the Fed chief also cited some signs of stabilization in the ailing housing market.

"Overall, the U.S. economy seems likely to expand at a moderate pace this year and next, with growth strengthening somewhat as the drag from housing diminishes," the Fed chief said in prepared remarks to the Senate Banking Committee.

Currently, interest rates are at a level that is "likely to foster sustainable economic growth and a gradual ebbing of core inflation," he added.

Info: Yahoo Finance