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| Version 3 | Version 4 |
|---|---|
| Fed boss says 2008 outlook worse | |
| (about 2 hours 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. |
| Analysts say this is a strong sign that the Fed will cut interest rates again when it meets later this month. | |
| 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. | The bank has cut rates three times since last summer, most recently in December to 4.25% - the lowest level in two years. |
| It is probably likely to solidify expectations... that the Fed will cut rates by 50 basis points David Resler, chief economist, Nomura Securities | |
| 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". |
| 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," he said. | |
| US stocks initially 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 early afternoon trade in New York reversing its earlier fall at the start of the day. | |
| Housing | Housing |
| Mr Bernanke said incoming information suggested "that the baseline for real activity in 2008 has worsened and the downside risks to growth have become more pronounced". | |
| The US is facing the twin threats of how to tackle a slowing housing market and lower consumer spending while at the same time addressing inflation as oil and food prices rise. | |
| In particular, Mr Bernanke highlighted the impact the slowing housing market and specifically the sub-prime mortgage crisis continued to have on the wider economy. | |
| With banks having had to write off billions of dollars of investments linked to sub-prime debt - loans taken out by people with bad or little credit histories - this has made them reluctant to lend, limiting the availability of credit, Mr Bernanke explained. | |
| The Federal Reserve is not currently forecasting a recession Ben Bernanke, chairman, Federal Reserve | |
| He added that the financial situation "remains fragile, and many markets remain impaired", saying that much uncertainty remained about the exposure of major banks to the credit crisis. | |
| He said it was in the best interest of banks and financial organisations to systematically restructure loans. | |
| "This is not a situation that can be dealt with one mortgage at a time," he said. | |
| Recession? | |
| As well as underlining sub-prime problems, the Fed boss cited higher oil prices, lower equity prices and softening home values as factors that could further dent consumer spending. | |
| During his speech at a Women in Housing and Finance lunch, he also said that if the labour market continued to worsen, this could further add strain to the economy. | |
| But when asked if he was concerned about a possible recession he said: "The Federal Reserve is not currently forecasting a recession." | |
| 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. |