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Bernanke says weak growth may prompt fresh rate cuts

Fed chief says government will 'act in timely manner' to fight downturn

Bernanke says weak growth may prompt fresh rate cuts

U.S. Federal Reserve chairman Ben Bernanke told Congress on Wednesday that weak U.S. economic growth may prompt the central bank to cut interest rates further to ward off a severe downturn.
Bernanke said "downside risks" to growth were buffeting the U.S. economy and stressed the Fed was ready to implement fresh rate cuts if economic momentum is threatened, despite heightened inflation worries.
"The Federal Open Market Committee will be carefully evaluating incoming information bearing on the economic outlook and will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks," America's top central banker said.
The Fed chairman spoke as he delivered the central bank's semiannual economic report to Congress, and as economists continue debating whether the economy will fall into a recession or continue expanding.
Bernanke said a multiyear housing slump and a financial market credit crunch were threatening growth and had created a "distinctly less favorable" economic environment.
He said consumer spending appeared to have slowed "significantly" and that other reports in recent weeks "suggest sluggish economic activity in the near term."
U.S. gross domestic product growth moderated abruptly to a 0.6 percent annualized crawl in the last three months of 2007, compared with a strong 4.9 percent pace in the prior quarter.
The Fed has aggressively slashed interest rates by 225 basis points since September in a bid to fire up economic momentum, cutting its key short-term federal funds interest rate to 3.00 percent.
Many economists expect the Fed to reduce rates again at a March 18 policy meeting.
"Rate cuts are still on the agenda," Stephen Gallagher, an economist at Societe Generale, said of Bernanke's testimony.
Brian Bethune, an economist at Global Insight, agreed, saying: "Bernanke has left the door wide open for further interest rate reductions."
David Kotok, the chief investment officer at Cumberland Advisors, said in a briefing note that he expects the fed funds rate to be cut to 2.50 percent on March 18.
In a nod to inflation risks, Bernanke said price spikes appeared to be jostling American consumers who are juggling mortgage loans, credit card bills and higher gasoline and supermarket bills.
"The further increases in the prices of energy and other commodities in recent weeks, together with the latest data on consumer prices, suggest slightly greater upside risks to the projections of both overall and core inflation than we saw last month," he said.
A government report Tuesday revealed inflation at the wholesale level had rocketed 7.4 percent in the 12 months to January, marking the sharpest annual gain since October 1981.
Rising crude oil and food costs, in particular, have stoked price increases and world oil prices continued to hover close to record peaks around 100 dollars a barrel Wednesday.
Bernanke warned that if the prices of goods and food jump higher it could "complicate" the central bank's ability to continue cutting borrowing costs to help underpin growth.
If the Fed cuts interest rates in a high inflation environment it may fuel further price hikes.
While signaling that inflation risks could hamper the central bank's rate-cutting campaign, Bernanke said it was also possible that slower growth could temper price increases.


Updated : 2021-04-13 04:29 GMT+08:00