NewsFlashUS Fed chief hints at more rate cuts

10 January 2008 18:25  [Source: ICIS news]

WASHINGTON (ICIS news)--Federal Reserve chairman Ben Bernanke hinted broadly on Thursday that the US central bank will soon make further and possibly aggressive reductions in key US interest rates in order to sustain the economy.

Speaking at a financial luncheon, Bernanke said the US economic “turmoil has affected the prospects for the broader economy, principally through the effects on the availability and the terms of credit for households and businesses.”

Bernanke said that while inflation appears to be increasing, especially under the influence of rising energy prices, he also indicated the “inflation expectations appear to have remained reasonably well anchored”, which suggested that the central bank chief is more worried about the possibility of a US recession than inflation.

“In light of recent changes in the outlook for and the risks to growth, additional policy easing may well be necessary,” he said.

Bernanke suggested that the Central Bank was prepared to continue to lower rates at its two-day Federal Open Market Committee scheduled for 27-28 January.

“We stand ready to take substantive additional action as needed to support growth, and to provide adequate insurance against downside risks,” he said.

Analysts in recent days have speculated that the Fed might drop rates 25 basis points or more at the meeting.

The committee cut its target for the federal funds rate by 50 basis points at its September meeting and by 25 basis points each at the October and December meetings.

In total, the Fed brought the funds rate down by a percentage point from its level just before financial strains emerged in 2006.

By: Joe Kamalick
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