Seems like that talk woth Paulson and Bush did Bernanke some good, Inflation? - Mercedes-Benz Forum

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post #1 of 2 (permalink) Old 01-11-2008, 05:06 AM Thread Starter
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Seems like that talk woth Paulson and Bush did Bernanke some good, Inflation?

Inflation, what inflation? We can screw up the economy now and when the new suckers are in office it will be their problem. Where is Paul Volker when you need him......................

Bernanke says Fed ready for aggressive cut

In a dramatic change of tone, Ben Bernanke on Thursday indicated that the Federal Reserve is ready to cut interest rates aggressively to ward off the risk of a US recession, sending stocks soaring.

The Fed chairman said “we stand ready to take substantive additional action as needed to support growth and to provide additional insurance against downside risks”.

This decisive language represents a new message from the Fed, which as late as its December policy meeting emphasised the uncertainty surrounding the economic outlook, with risks to both growth and inflation.

Mr Bernanke said the economy probably grew at a “moderate pace” in the final quarter of 2007.

But he said “incoming information has suggested that the baseline outlook for real activity in 2008 has worsened and the downside risks to growth have become more pronounced”.

In the light of “recent changes to the outlook for and the risks to growth, additional policy easing may well be necessary”, Mr Bernanke said.

Demand for housing “seems to have weakened further, in part reflecting the ongoing problems in mortgage markets”.

In addition, he said, higher oil prices, lower equity prices and softening home values were likely to “weigh on consumer spending as we move into 2008”.

He warned that the strains in financial markets “continue to pose a downside risk to the outlook for growth” with investors still uncertain about the true value of complex financial assets and about the extent of additional losses that may be disclosed in the future.

The financial situation “remains fragile and many funding markets remain impaired” he said.

The Fed chief said there was already “considerable evidence that banks have become more restrictive in their lending to firms and households”.

This he said was “likely to impose a measure of financial restraint on growth”.

Mr Bernanke also raised the risk of a negative feedback loop taking hold – with the credit squeeze causing broad economic weakness that raises the risk of further losses in the financial system, that could in turn intensify the credit squeeze.

“Adverse economic or financial news has the potential to increase financial strains and to lead to further constraints on the supply of credit to households and businesses” he said.

Mr Bernanke said the labour market represented a “second consequential risk to growth”. He said that prior to December’s “disappointing” jobs report, the labour market had been a “source of stability”.

“Should the labour market deteriorate, the risks to consumer spending would rise,” he said.

The Fed chairman did not discard the US central bank’s inflation concerns, warning that the renewed strength in oil prices was “lifting overall consumer prices and probably putting some upward pressure on core inflation measures as well”.

He hinted that provided inflation expectations remained steady this would not get in the way of Fed easing, but said “we will be closely monitoring the inflation situation, in particular as regards inflation expectations”.

Mr Bernanke’s comments came as Robert Rubin, the former US Treasury Secretary, threw his weight behind plans for a fiscal stimulus to provide further support for the US economy, which a panel of experts he chaired suggested should be about $100bn. / World / US & Canada - Bernanke says Fed ready for aggressive cut
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post #2 of 2 (permalink) Old 01-11-2008, 10:24 AM
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He has such a good track record so far. This should be interesting.


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