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Bernanke tells Congress U.S. outlook to improve later this year

The Fed chief and Treasury Secretary Paulson note tightening credit markets but expect a return to normal.

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The economy may be weak now, but it's going to improve later in the year as Congress's economic-stimulus package kicks in and prior interest-rate cuts start to help the nation.

That's the message from the government's top economic czars, Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson, both testifying before the Senate Banking Committee on Thursday morning.

However, Mr. Bernanke warned that there remain risks to the economy, including a further deterioration of the housing market, softness in the labor market, and credit tightening by the banking industry. In addition, he says the Fed is continuing to monitor inflation, which Bernanke says will moderate. If inflation expectations were to rise, he said it would complicate the central bank's job.

So far, inflation has been mainly falling on household budgets, says Scott Brown, chief economist at Raymond James & Associates in St. Petersburg, Fla. "We're not seeing wage inflation and a rise in inflation expectations.... But it doesn't help that oil is closing in on $95 a barrel again."

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