In a question and answer session with the Senate Banking Committee at the Humphrey-Hawkins testimony, Federal Reserve Chairman Ben Bernanke said the central issue in the U.S. economy is the housing market.

Bernanke said the housing market is under considerable financial stress and that the focus should be on housing in the near term.

Bernanke added that legislation needs to be passed for GSE reform. He reiterated his view for the need for a strong GSE regulator to reassure members. Bernanke attributed the subprime crisis to having triggered a broad retreat from risk taking and credit.

Bernanke commented that slowing construction has subtracted 1% from the GDP. He expects construction to stabilize in 2008 and housing prices to decline even after new construction begins.

By Steve Stecyk and edited by Sarah Sussman