Fed chief’s remarks leave the door open for a further rate cut
Warning that financial markets remain under “severe strain,” Federal Reserve Chairman Ben S. Bernanke pledged Friday to work closely with other central banks to fix global financial problems and left open the door to a fresh interest rate cut to help brace the sinking U.S. economy.
“The continuing volatility of markets and recent indicators of economic performance confirm that challenges remain,” Bernanke told a central banking conference in Frankfurt, Germany. “For this reason, policymakers will remain in close contact, monitor developments closely and stand ready to take additional steps should conditions warrant.”
The Fed chief’s remarks appeared to reinforce the view of investors and economists that the Fed probably will lower interest rates again Dec. 16, at its last regularly scheduled meeting this year. The Fed’s key rate is now at 1%.
Although the Fed has ratcheted down rates and taken a flurry of unprecedented actions to arrest the worst financial meltdown since the Great Depression, deep problems remain. Credit still is not flowing normally, hobbling the U.S. economy.
All the information thus far “tells me that the economy is now in a recession,” Sandra Pianalto, president of the Federal Reserve Bank of Cleveland, said in a speech in Ohio on Friday.
“At the moment, the signs point to a recession beyond just a garden variety downturn,” she said. “The length and severity of the recession will depend on how quickly credit markets return to normal.”
The remarks by Bernanke and Pianalto come as President Bush and other world leaders descend on Washington for an extraordinary summit to explore options for economic relief and develop plans to prevent a repeat of the type of housing, credit and financial crises now endangering the world economy.
Speaking to reporters after the central banking session, Bernanke said he didn’t believe the summit would result in a “convergence of policy.” Instead, he predicted some cooperative efforts that “could be more effective than working alone.”
