Bernanke says Fed may take "substantive action", temporary stimulus may help in speech.

January 17, 2008 - Forex Economic News

Today in Washington, the Federal Reserve Chairman Ben Bernanke spoke on the state of the U.S. economy and the problems it faces while providing a glimpse into possible solutions from the government. Bernanke cited instability in the financial markets and the problems that the housing sector is experiencing as continuing strains on the economy. Largely due to the subprime mortgage crisis and the tightened credit lending that has followed, the economy is looking bleak as we head into the beginning of 2008. The recent rash of weak data(jobs, sales, housing) has cast an even more subdued setting than Bernanke's previous predictions of a slowdown in the beginning of 2008. Bernanke stated that "recently, incoming information has suggested that the baseline outlook for real activity in 2008 has worsened and that the downside risks to growth have become more pronounced."

Following interest rate cuts in September, October and December, Bernanke said that "additional policy easing may well be necessary" to stimulate economic growth and fight off a recession. The Fed may take "substantive additional action" in monetary policy according to Bernanke with many interpreting this to mean an interest rate cut of at least .50 percentage points will be taking place later in January. In addition to rate cuts, Bernanke was open to the idea of a economic stimulus package to help spur economic growth in the U.S. A package would useful if it were "implemented quickly and structured so that its effects on aggregate spending are felt as much as possible within the next twelve months or so." Bernanke warned that a package should only be focused on short term benefits to the economy and not produce an increase to the government's budget deficit. You can read the full Bernanke speech here.

Tags: Ben Bernanke, US Economy, US Fed, economic stimulus, interest rate cuts, state of the economy, substantive additional action ------------------------ Blog index