Bernanke: Fed ready to lower rates again
Bernanke: Fed ready to lower rates again
The country should prepare for a sluggish economy, the Fed chief says.
WASHINGTON (AP) — The Federal Reserve is ready to lower interest rates again to brace the wobbly economy even as zooming oil prices spread inflation, Chairman Ben Bernanke signaled to Congress on Wednesday.
He is fighting to keep the economy afloat after mighty blows from the housing and credit crises, while trying to contain inflation.
For now, the priority is shoring up the economy, Bernanke suggested in an appearance before the House Financial Services Committee. He pledged anew to slice a key interest rate and help the economy, which many fear is on the verge of a recession, if not already in one.
“The economic situation has become distinctly less favorable” since the summer, the Fed chief told lawmakers.
Since that time, the housing slump has worsened, credit problems have intensified and the job market has deteriorated. Bernanke said that combination of bad news has made people and businesses more cautious about spending and investing — further weakening the economy.
The country should prepare for “sluggish economic activity in the near term,” Bernanke said. Concern is growing about the possible return of stagflation, when stagnant growth is combined with rising inflation, for the first time since the 1970s.
Were energy prices to continue to rise at a sharp clip — something the Fed does not anticipate — it would “create a very difficult problem” for the economy, Bernanke said. Inflation would spread and growth would be further restrained, he said. If that happened, it would be a “very tough situation,” he added.
The Fed is prepared to lower rates again to bolster economic growth, Bernanke said. The Fed “will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks,” he said, sticking closely to assurances he offered earlier this month.
The central bank started lowering a key interest rate in September.