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| Version 2 | Version 3 |
|---|---|
| Bernanke says 2008 outlook worse | Bernanke says 2008 outlook worse |
| (40 minutes later) | |
| Federal Reserve chief Ben Bernanke has said that the outlook for the US economy in 2008 has worsened. | Federal Reserve chief Ben Bernanke has said that the outlook for the US economy in 2008 has worsened. |
| His comments in Washington come after leading investment banks warned that the US was heading for a recession. | His comments in Washington come after leading investment banks warned that the US was heading for a recession. |
| However, Mr Bernanke said the central bank was willing to act in a decisive and timely manner to ensure the economy remained on an even keel. | However, Mr Bernanke said the central bank was willing to act in a decisive and timely manner to ensure the economy remained on an even keel. |
| The Fed has recently cut interest rates to counter slowing economic growth and problems in the housing market. | The Fed has recently cut interest rates to counter slowing economic growth and problems in the housing market. |
| Substantive action | Substantive action |
| The bank has cut rates three times since last summer, most recently in December to 4.25% - the lowest level in two years. | |
| During his speech on Thursday, Mr Bernanke said the Fed was prepared to "take substantive additional action as needed to support growth and to provide adequate insurance against downside risks". | During his speech on Thursday, Mr Bernanke said the Fed was prepared to "take substantive additional action as needed to support growth and to provide adequate insurance against downside risks". |
| Some analysts say this is tantamount to saying the bank is prepared to cut interest rates again when it next meets at the end of this month. | Some analysts say this is tantamount to saying the bank is prepared to cut interest rates again when it next meets at the end of this month. |
| David Resler, chief economist at Nomura Securities International said Mr Bernanke's remarks came as little surprise. | |
| "It is probably likely to solidify expectations...that the Fed will (cut rates by) 50 basis points...now more people will think that way." | |
| US stocks rose on the news as investors were buoyed by the prospect of future interest rate cuts. The Dow Jones Industrial Average added 89 points, or 0.7%, at 12, 824.3 in afternoon trade in New York reversing its earlier fall at the start of the day. | US stocks rose on the news as investors were buoyed by the prospect of future interest rate cuts. The Dow Jones Industrial Average added 89 points, or 0.7%, at 12, 824.3 in afternoon trade in New York reversing its earlier fall at the start of the day. |
| Housing | |
| The US is facing the twin threat of how to tackle a slowing housing market and lower consumer spending while at the same time addressing inflation as the rising oil price pushes energy prices up. | The US is facing the twin threat of how to tackle a slowing housing market and lower consumer spending while at the same time addressing inflation as the rising oil price pushes energy prices up. |
| Mr Bernanke highlighted the effect the sub-prime mortgage crisis is having on the wider economy. | |
| With banks having had to write off billions of dollars of investments linked to sub-prime debt - that taken out by people on low wages or with bad credit histories - so this has made them reluctant to lend, limiting the availability of credit, Mr Bernanke explained. | |
| He added that the financial situation "remains fragile, and many markets remain impaired," adding that much uncertainty remained about the exposure of major banks to the credit crisis. | |
| He also cited high oil prices as a problem and one that could further dent consumer spending. | |
| Earlier this week, Merrill Lynch controversially said the US had already entered a recession, while Goldman Sachs has also suggested it is heading in that direction. | Earlier this week, Merrill Lynch controversially said the US had already entered a recession, while Goldman Sachs has also suggested it is heading in that direction. |
| The problems began when the booming housing market began to cool about two years ago as a result of a rapid increase in interest rates to a six-year high of 5.25% last year, which made home loan repayments more expensive. | |
| This hit sub-prime borrowers particularly hard and sparked a record number of late payments and mortgage defaults. |