U.S. Federal Reserve Chairman Ben Bernanke said Wednesday the nation's economy is likely to grow modestly this year and next and inflation will continue to ease.

"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," Bernanke told the Senate's Committee on Banking, Housing and Urban Affairs.

He said real gross domestic product is projected by the central bank to increase about 2.5 percent to 3 percent in 2007 and about 2.75 percent to 3 percent in 2008.

The civilian unemployment rate is expected to finish both 2007 and 2008 around 4.5 percent to 4.75 percent, he said.

The Fed chief said there are some indications that inflation pressures are beginning to diminish.

"Recent declines in overall inflation have primarily reflected lower prices for crude oil, which have fed through to the prices of gasoline, heating oil, and other energy products used by consumers," he said.

After moving higher in the first half of 2006, core consumer price inflation has also edged lower recently, reflecting a relatively broad-based deceleration in the prices of core goods, or goods excluding food and energy, said the Fed chief.

The Fed's projections "are for inflation to continue to ebb over this year and next," said Bernanke.

Core inflation, as measured by the price index for personal consumption expenditures excluding food and energy, is expected to be 2 percent to 2.25 percent this year and edge lower, to 1.75 percent to 2 percent, next year, he said.

But he cautioned that the high level of resource utilization remains an important upside risk to continued progress on inflation.

The Fed chief also warned that the risks to the economic growth outlook are "significant."

"To the downside, the ultimate extent of the housing market correction is difficult to forecast and may prove greater than we anticipate," he said.

Similarly, spillover effects from developments in the housing market onto consumer spending and employment in housing-related industries may be more pronounced than expected, said Bernanke.

A deeper than expected housing slump could hurt overall economic growth. If that were to happen, Bernanke said, the Fed in theory might be inclined to lower rates to help bolster the economy.

However, he did not specifically mention the possibility of a rate cut.

Source: Xinhua