In a statement made to the U.S. Congress and the Joint Economic Committee today, U.S. Federal Reserve Board Chairman Ben Bernanke said the U.S. economy appears to have grown rapidly in the first three months of 2006.

This follows a dour fourth quarter of 2005, in which economic activity decelerated noticeably partly because of the devastating hurricanes in the Gulf region and partly because of some temporary or special factors. The growth of the real GDP slowed from an average annual rate of almost 4% over the first three quarters of 2005 to less than 2% in the fourth quarter.

But since then, with some rebound in activity under way in the Gulf Coast region and continuing expansion in most other parts of the country, the national economy appears to be on its way back. Among the key economic indicators, growth in non-farm payroll employment picked up in November and December, and job gains averaged about 200,000 per month between January and March.

Consumer spending and business investment, as inferred from data on motor vehicle sales, retail sales, and shipments of capital goods, are also on track to post sizable first-quarter increases. In light of these signs of strength, most private-sector forecasters, such as those included in the latest Blue Chip survey, estimate that real GDP grew between 4% and 5% at an annual rate in the first quarter.

“If we smooth through the recent quarter-to-quarter variations, we see that the pace of economic growth has been strong for the past three years, averaging almost 4% at an annual rate since the middle of 2003,” said Bernanke. “Much of this growth can be attributed to a substantial expansion in the productive capacity of the U.S. economy, which in turn is largely the result of impressive gains in productivity — that is, in output per hour worked. However, a portion of the recent growth reflects the taking up of economic slack that had developed during the period of economic weakness earlier in the decade.”

He later added: “Based on the information in hand, it seems reasonable to expect that economic growth will moderate toward a more sustainable pace as the year progresses.”

Meanwhile, the Bank of Montreal says that today’s Congressional testimony by Bernanke provided strong indications that the U.S. central bank was close to the end of its current tightening cycle.

BMO reports that the chairman stated that “at some point in the future the [Federal Open Market] Committee may decide to take no action at one or more meetings.” This statement was qualified that it was data dependent, it adds.

“As well, opting not to move rates one meeting did not preclude a move at a subsequent meeting if the data so warranted. However, with these comments, the central bank is starting to prepare financial markets for an end to interest rate hikes,” BMO concludes.

“Our current forecast assumes that fed funds will be raised one last time at the May 10 FOMC meeting to 5.00%. After that we have this rate holding steady through the remainder of this year,” it says.

Beyond that, it expects the Fed to cut rates to the 4.50% level, “which we deem is the more appropriate rate to sustain growth at potential.

“Today’s comments are generally consistent with our near-term call on interest rates,” BMO says. “It is likely that the Fed will boost fed funds once again next month though significantly alter its accompanying statement. Specifically, the statement would drop the reference to the possible need for further firming and instead likely make reference to the considerable restraint that has already been introduced.”