Bernanke Open to New Steps to Keep Recovery Going
Federal Reserve Chairman Ben Bernanke told Congress Wednesday the economic outlook remains "unusually uncertain," and the central bank is ready to take new steps to keep the recovery alive if the economy worsens.
Testifying before the Senate Banking Committee, Bernanke also said record low interest rates are still needed to bolster the economy. He repeated a pledge to keep them there for an "extended period." Bernanke downplayed the odds that the economy will slide back into a "double-dip" recession. But he acknowledged the economy is fragile.
Senate Committee on Banking Housing and Urban Affairs hearing during which Federal Reserve Board Chairman Ben Bernanke delivers second semi-annual report on monetary policy.
Given that, the Fed is "prepared to take further policy actions as needed" to keep the recovery on track, he said. Bernanke said Fed policymakers haven't settled on "leading options" but they are being explored. Those options include lowering the rate the Fed pays banks to keep money parked at the Fed, strengthening the pledge to hold rates at record lows and reviving some crisis-era programs, Bernanke said.
"If the recovery seems to be faltering, we have to at least review our options," Bernanke told lawmakers. However, he added later: "We are not prepared to take any specific steps in the near term" because the Fed is still evaluating the strength of the recovery.
Bernanke is trying to send Congress, Wall Street and Main Street a positive message that the recovery will last in the face of growing threats. At the same time, he wants to assure Americans that the Fed will take new stimulative actions if necessary.
The recovery, which had been flashing signs of strengthening earlier this year, is losing momentum. And fears are growing that it could stall.
Consumers have cut spending. Businesses, uncertain about the strength of their own sales or the economic recovery, are sitting on cash, reluctant to beef up hiring and expand operations. A stalled housing market, near double-digit unemployment and an edgy Wall Street shaken by Europe's debt crisis are other factors playing into the economic slowdown.
"In short, it look likes our economy is in need of additional help," said the committee's chairman, Sen. Chris Dodd, D-Conn. And, Sen. Richard Shelby of Alabama, the highest-ranking Republican on the panel, said the economic outlook has become a "bit more cloudy."
With little appetite in Congress to provide a major new stimulus package, more pressure falls on Bernanke to keep the recovery going. Bernanke and his Fed colleagues have cut their forecasts for growth this year.
If the recovery were to flash serious signs of backsliding, the Fed could revive programs to buy mortgage securities or government debt. It could cut to zero the interest rate paid to banks on money left at the Fed or lower the rate banks pay for emergency Fed loans. The Fed also could create a new program to spark more lending to businesses and consumers in a bid to lure them to ratchet up spending and grow the economy.
Bernanke said the debt crisis in Europe, which has rattled Wall Street, played a role in the Fed's "somewhat weaker outlook." Although financial markets have improved considerably since the depth of the financial crisis in the fall of 2008, conditions have become "less supportive of economic growth in recent months," he explained.
As a result, Bernanke said progress in reducing the nation's unemployment rate, now at 9.5 percent, is now expected to be "somewhat slower" than thought. Unemployment is expect to stay high, in the 9 percent range, through the end of this year, under the Fed's forecast.
High unemployment is a drag on household spending, Bernanke said, although he believed both consumers and businesses would spend enough to keep the recovery intact.
Bernanke also said it would take a "significant amount of time" to restore the nearly 8.5 million jobs wiped out over 2008 and 2009.
And, Bernanke said the housing market remains "weak" and noted that the overhang of vacant or foreclosed houses are weighing on home prices and home construction.
Given the weak recovery, inflation is not a problem, Bernanke said. However, Bernanke didn't talk about deflation, a prolonged and destabilizing drop in prices for goods, the values of stocks and homes and in wages. Although most economists think the prospects of deflation are remote, some Fed officials have expressed concern about it.
To strengthen the economy, many economists predict the Fed will hold a key bank lending rate at a record low near zero well into 2011, or possibly into 2012. Doing so, would help nip any deflationary forces.
And keeping that bank rate at super low levels also would mean rates on certain credit cards, home equity loans, some adjustable-rate mortgages and other consumer loans would stay at their lowest point in decades.
Ultra-low lending rates, however, haven't done much lately to rev up the economy. Consumers and businesses are cautious and aren't showing an appetite to spend as lavishly as they usually do in the early stages of economic recoveries.
Bernanke, meanwhile, welcomed Congress' new revamp of financial regulations signed into law by President Barack Obama on Wednesday. The new law, he said, "will place our financial system on a sounder foundation and minimize the risk of a repetition of the devastating events of the past three years
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This guy is an arrogant SOB he says:
Record low interest rates are still needed to bolster the economy. What good are low interest rates when equity values are falling and people are out of work and have no income.
High unemployment is a drag on household spending. This is news??
Bernanke said the housing market remains "weak" and noted that the overhang of vacant or foreclosed houses are weighing on home prices and home construction. Really???
Regarding the new financials law passed by congress. He says, The new law, "will place our financial system on a sounder foundation and minimize the risk of a repetition of the devastating events of the past three years. To this I say that is the biggest load of crap he testified to today.
Tell me why no one has been indicted for the financial melt down. Goldman Sacs ,who is one of the major players, settled OVER THE PHONE, with the justice department for a miserly sum of 500 million. These guys make 20 million dollars a day. Not one CEO or any government official has been charge with anything.
The new "sweeping financial law" is a sweeping alright. It is sweeping the whole mess under the carpet. This is what they always do after their schemes blow up. Remember the last one, the Dot com bubble and financial disclosure laws. How did that one work and who was brought to justice for that one.
Obviously the low interest loans are not going to the problem which is the real economy. Who wants to loan money on a falling asset. Hell, who wants to buy one. The money is going to the banks and brokers and the banks and brokers are playing in the casino (stock and bond markets) to make their money.
This recovery is a financial recovery not an economic recovery in the real economy. Jobs in this country have ONLY BEEN CREATED BY SMALL BUSINESS. THE LARGE CORPORATIONS HAVE BEEN SHIPPING JOBS OVERSEAS, TO FATTEN THEIR EARNINGS, EVER SINCE FREE TRADE CAME INTO BEING.
The reason they say it is a recovery is that the US economy is just a paper pushing financial economy now. The US is just a very large casino where stock and debt is issued to something that exists overseas.
You can dummy up a financial economy and call it anything you want to but in the real economy where people live, money flow is being shut off. Hell, for those who saved all of their lives can't earn a damn thing in interest and are being forced to invest in the casino. That very investment along with the trillions of dollars being poured into the banks and corporations by the US treasury is keeping this Faux recovery going financially and not economically.
Ben here is what happened. You and your friends in congress and on Wall Street forced a housing and debt bubble on this country that is now in the process of deflating. The deleveraging process is causing high unemployment, lost wealth, and lost homes. This is going to last for a long time and you know it.
Your buddies on Wall Street have been saying that you are printing money and there is going to be inflation. You and you fellow central bankers have propped up the price of Gold to give the impression that inflation is coming.
You and you friends in government and on Wall Street are taking money from the US treasury and directing these funds into the financial markets. Every mortgage in the US could have been paid off with the money you have stolen from the treasury. In short you are covering up the biggest crime in history.
I do not agree on many things that Jim Cramer says but I agree that this is a government of the corporations, by the Corporations, for the Corporations. Bernanke is there to maintain the status quo. Cramer is there to take advantage of the casino.
Mikey
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