Open

Coming up

Don't miss

Replay


LATEST SHOWS

MEDIAWATCH

Media accused of pro-protester bias in Ferguson

Read more

DEBATE

The Murderous Lure of Jihad: Tackiling ISIS and its Worldwide Recruitment (part 2)

Read more

DEBATE

The Murderous Lure of Jihad: Tackiling ISIS and its Worldwide Recruitment

Read more

FOCUS

Republicans block Obama's bid to hike minimum wage

Read more

WEB NEWS

Calls for ISIS media blackout after execution of James Foley

Read more

WEB NEWS

Web users divided over Darren Wilson

Read more

WEB NEWS

Web users take on 'Ice Bucket Challenge' to fight ALS

Read more

ENCORE!

From Paris's Liberation to 'arresting' art in Avignon

Read more

INSIDE THE AMERICAS

Ferguson riots: Pressure mounts on Obama

Read more

  • US says Islamic State threat 'beyond anything we've seen'

    Read more

  • Reporter’s IS captors taunted family, asked for €100m ransom

    Read more

  • Two US Ebola patients leave hospital ‘virus-free’

    Read more

  • Hollande is ‘nobody’s president’ says former French minister

    Read more

  • Turkey’s Erdogan names foreign minister Davutoglu as next PM

    Read more

  • US reaches historic $16.7bn settlement with Bank of America

    Read more

  • Special report: Supplying Ukraine’s soldiers on the front line

    Read more

  • Israeli air strike kills three top Hamas commanders

    Read more

  • France delivered arms to Syrian rebels, Hollande confirms

    Read more

  • Tensions high in Yemen as Shiite rebel deadline looms

    Read more

  • Interactive: Relive the Liberation of Paris in WWII

    Read more

  • French village rallies behind besieged elderly British couple

    Read more

  • Former Irish PM Albert Reynolds dies at 81

    Read more

  • Former Femen activist detained after fighting veiled woman

    Read more

  • Thailand coup leader Prayuth Chan-ocha voted prime minister

    Read more

  • Brazil’s Silva launches bid after Campos plane crash death

    Read more

Business

Fed ready to intervene as US economic recovery weakens

Text by News Wires

Latest update : 2010-08-27

US Federal Reserve Chairman Ben Bernanke said on Friday that the US recovery was weaker-than-expected and that the Fed is ready to step in with another massive purchase of securities to boast growth.

REUTERS - U.S. Federal Reserve Chairman Ben Bernanke said on Friday the economic recovery has weakened more than expected and the Fed is ready to take further steps if needed to spur slowing growth.

Bernanke’s comments, in an address to an annual conference of global central bankers held by the Fed, came as the government reported that economic growth in the second quarter was weaker than it had originally estimated.

With interest rates held at ultra-low levels since December 2008, the Federal Open Market Committee, the Fed’s policy-setting body, has turned to other measures, pumping more close to $1.7 trillion into the economy.

“The committee is prepared to provide additional monetary accommodation through unconventional measures if it proves necessary, especially if the outlook were to deteriorate significantly,” Bernanke told the Fed conference, held in Jackson Hole, Wyoming.

He made clear, however, that the U.S. central bank has not decided what would prompt additional easing.

“At this juncture, the committee has not agreed on specific criteria or triggers for further action,” he said.

Bernanke said the U.S. central bank’s purchases of longer-term securities have been effective in lowering borrowing costs and that he believes the benefits of buying more such assets, if needed, would outweigh any disadvantages.

U.S. stocks turned lower initially after Bernanke’s comments but then recovered to trade about 1 percent higher, while U.S. Treasury bond prices were lower, as was the U.S. dollar.

Other options

Bernanke also said other options to spur economic growth - such as committing to hold interest rates exceptionally low for an even longer period than is currently priced in to financial markets, or raising the Fed’s inflation targets - would be less effective in the current environment.

He stressed that the high jobless rate remains a concern to policy makers, and said the Fed would be vigilant against deflation - a dangerous downward spiral in prices that chills economic growth by making both businesses and consumers reluctant to make purchases - even though it is not currently a risk in the United States.

“Because a further significant weakening in the economic outlook would likely be associated with further disinflation, in the current environment there is little or no potential conflict between the goals of supporting growth and employment and of maintaining price stability,” he said.

Investors and economists said Bernanke’s remarks indicated that he favored more quantitative easing measures.

“It’s not a foregone conclusion. There is still debate about whether it should be done or not,” said Andrew Harding, a bond portfolio manager at PNC Capital Advisors, in Cleveland.

“Bernanke has not taken off the table more quantitative easing, specifically the buying of Treasuries outright, but it is unclear what would trigger that,” Dana Saporta, economist at Credit Suisse in New York.

The Fed has promised to keep interest rates exceptionally low for an extended period to support the economy. In addition, it bought close to $1.7 trillion in assets to provide additional stimulus.

As economic data pointed to a weakening of the recovery in recent months, the Fed said after its August meeting it would reinvest maturing securities to hold its balance sheet at a steady level at more than double its pre-crisis size to support the recovery, rather than letting it shrink, as it had been doing.

Hand-off underway

Despite the rather sober tone of much of his remarks, which were unusually policy-heavy for a conference that tends to focus on loftier academic matters, Bernanke said he was confident the U.S. recovery would not stall.

He said while the exit from recession was driven primarily by fiscal and monetary stimulus measures and inventory rebuilding by businesses, a “hand-off” to consumer demand appeared to be under way.

Bernanke also downplayed a sharp widening of the trade deficit, which was a drag on second-quarter gross domestic product. The economy expanded at a 1.6 percent annualized rate between April and June, the Commerce Department reported on Friday, revising down its initial estimate of 2.4 percent.

Bernanke blamed a slow recovery in the labor market for restraining incomes and hurting consumer confidence.

“The prospect for household spending depends to a significant extent on how the situation evolves,” he said.

He noted conflicting signals in personal income data, which suggested consumers were indeed pulling back, but also a higher savings rate that could lead to firmer consumer spending down the line.

Holding out some hope for the beleaguered housing sector despite a terrible raft of recent data, Bernanke said falling prices and low mortgage rates should boost demand.
 

Date created : 2010-08-27

  • MARKETS

    World stocks falter on fears of only 'modest' US recovery

    Read more

  • USA

    Fed pledges more stimulus spending, says recovery slow

    Read more

  • USA

    Fed chief warns US economy facing 'unusually uncertain time'

    Read more

COMMENT(S)