US outlook getting worse: Economy roundup

US Federal Reserve chairman Ben Bernanke has abandoned any pretence of positivity and now says the US economy now faces both recession and inflation risks.

US Federal Reserve chairman Ben Bernanke has abandoned any pretence of positivity and now says the US economy now faces both recession and inflation risks.

Bernanke set out his grim view on the prospects for the world’s biggest economy in testimony before a US Senate committee overnight.

There are “significant downside risks to the outlook for growth,” and “upside risks to the inflation outlook have intensified”, Bernanke said.

His comments contrast with previous statements that risk of an economic downturn had fallen.

Bernanke now believes the US economy is unlikely to move into positive terrain until next year.

“I am looking for the economy to strengthen next year, and as it does, I think that will support a strong dollar,” Bernanke said.

The prospect of substantial economic growth in the near future also appears to be receding in Australia, with a key measure of future economic growth staying at low levels in May.

The Westpac-Melbourne Institute Leading Index, which indicates the likely pace of economic activity three to nine months into the future, was 2.1% in May, well below its long term trend of 3.9%.

The result adds further weight to the view that the Reserve Bank of Australia will keep rates on hold when it meets again next month, Westpac chief economist Bill Evans says.

It has been an up and down day on the markets today, with the S&P/ASX200 up 0.2% on yesterday’s close to 4824.3 at 12.20pm after falling more than 30 points earlier this morning.

And the weak news from the US has helped keep the Australian dollar around record levels – it is trading at US98.07c at 12.20pm.

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