Ber­nanke: Fed will stand pat on re­cov­ery – for now, that is

But cen­tral bank set to step in ‘as needed’ if con­di­tions keep de­te­ri­o­rat­ing, chair­man says

Austin American-Statesman - - BUSINESS & PERSONAL FINANCE - By Jeannine Aversa

WASHINGTON — Fed­eral Re­serve Chair­man Ben Ber­nanke told Congress on Wed­nes­day that even though the eco­nomic re­cov­ery has weak­ened, the Fed is plan­ning no new steps to try to bol­ster it.

Ber­nanke said the Fed would con­sider ac­tion if mat­ters wors­ened.

His com­ments to the Se­nate Bank­ing Com­mit­tee sent stocks tum­bling. The Dow Jones in­dus­trial av­er­age had been up 20 points be­fore he spoke. It fell as much as 160 points dur­ing his tes­ti­mony be­fore re­cov­er­ing some­what. In­vestors shifted money into the safety of Trea­sury bonds.

“The mar­kets are more para­noid than the Fed is about the econ­omy’s health,” said David Resler, chief U.S. econ­o­mist at No­mura Se­cu­ri­ties. In­vestors wanted to hear a strat­egy “that will make a sec­ond dip a very re­mote pos­si­bil­ity.”

While not­ing the re­cov­ery’s fragility, Ber­nanke down­played the odds that the econ­omy will slide back into a so-called dou­ble-dip re­ces­sion.

“If the re­cov­ery seems to be fal­ter­ing, we have to at least re­view our op­tions,” Ber­nanke told law­mak­ers. But he said no fur­ther ac­tion is planned for now be­cause the econ­omy is still grow­ing.

Record-low in­ter­est rates are still needed to bol­ster the econ­omy, Ber­nanke said. He re­peated a pledge to keep them there for an ex­tended pe­riod.

The re­cov­ery, which had been flash­ing signs of strength­en­ing ear­lier this year, is los­ing mo­men­tum. Con­sumers have cut spend­ing. Busi­nesses, un­cer­tain about the strength of their own sales or the eco­nomic re­cov­ery, are sit­ting on cash, re­luc­tant to beef up hir­ing and ex­pand op­er­a­tions.

A stalled hous­ing mar­ket, near dou­ble-digit un­em­ploy­ment and an edgy Wall Street shaken by Europe’s debt cri­sis have also fac­tored in the eco­nomic slow­down.

“In short, it look likes our econ­omy is in need of ad­di­tional help,” said the com­mit­tee’s chair­man, Sen. Chris Dodd, D-Conn.

Ber­nanke said the Fed is “pre­pared to take fur­ther pol­icy ac­tions as needed” to keep the re­cov­ery on track. Fed pol­i­cy­mak­ers haven’t set­tled on “lead­ing op­tions,” but they are be­ing ex­plored, he said.

Ber­nanke is try­ing to send a pos­i­tive mes­sage that the re­cov­ery will last in the face of grow­ing threats. At the same time, he wants to as­sure Amer­i­cans that the Fed will take new stim­u­la­tive ac­tions if nec­es­sary. With lit­tle ap­petite in Congress to pro­vide a ma­jor new stim­u­lus pack­age, more pres­sure falls on Ber­nanke to keep the re­cov­ery go­ing.

Ber­nanke and his Fed col­leagues have cut their fore­casts for growth this year.

If the re­cov­ery were to flash se­ri­ous signs of

back­slid­ing, the Fed could re­vive pro­grams to buy mort­gage se­cu­ri­ties or govern­ment debt. It could cut to zero the in­ter­est rate paid to banks on money left at the Fed or lower the rate banks pay for emer­gency Fed loans. The Fed also could cre­ate a new pro­gram to spark more lend­ing to busi­nesses and con­sumers in a bid to lure them to ratchet up spend­ing and grow the econ­omy.

Ber­nanke also said it would take a “sig­nif­i­cant amount of time” to re­store the nearly 8.5 mil­lion jobs wiped out over 2008 and 2009. Un­em­ploy­ment is ex­pect to stay high, in the 9 per­cent range, through the end of this year, un­der the Fed’s fore­cast.

High un­em­ploy­ment is a drag on house­hold spend­ing, Ber­nanke said, al­though he be­lieved that both con­sumers and busi­nesses would spend enough to keep the re­cov­ery in­tact.

Given the weak re­cov­ery, in­fla­tion is not a prob­lem, Ber­nanke said.

To strengthen the econ­omy, many econ­o­mists pre­dict the Fed will hold a key bank lend­ing rate at a record low near zero well into 2011, or pos­si­bly into 2012.

Do­ing so would help nip any de­fla­tion­ary forces and keep a lid on in­ter­est rates on con­sumer loans. How­ever, ul­tra-low lend­ing rates haven’t been as ef­fec­tive as had been hoped in revving up the econ­omy.

Ben Ber­nanke Fed­eral Re­serve chief plays down chances of ‘dou­ble-dip’ re­ces­sion in tes­ti­mony be­fore U.S. Se­nate com­mit­tee.

Newspapers in English

Newspapers from USA

© PressReader. All rights reserved.