Federal Reserve Chairman Ben Bernanke testified before Congress today. Here are some high points in his prepared remarks:

There are some indications that inflation pressures are beginning to diminish. The monthly data are noisy, however, and it will consequently be some time before we can be confident that underlying inflation is moderating as anticipated. 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…But as I noted earlier, the FOMC has continued to view the risk that inflation will not moderate as expected as the predominant policy concern.

In other words, early signs exist that inflation is easing, but the Fed won't likely change its stance in focusing on inflation for some time..

Some tentative signs of stabilization have recently appeared in the housing market: New and existing home sales have flattened out in recent months, mortgage applications have picked up, and some surveys find that homebuyers' sentiment has improved. However, even if housing demand falls no further, weakness in residential investment is likely to continue to weigh on economic growth over the next few quarters as homebuilders seek to reduce their inventories of unsold homes to more-comfortable levels.

In other words, while we may have bottomed, we are likely to stay there for a while and the construction slowdown will weigh down the economy.

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 risks to this outlook are significant.

In other words, the economy looks reasonably healthy right now, but a spillover from housing that impacts consumer spending is a risk.

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