US Fed chief hints at interest rate cut soon

07 October 2008 19:55  [Source: ICIS news]

WASHINGTON (ICIS news)--The US Federal Reserve will likely cut its key interest rates still further at its next rate-setting meeting at the end of October, Fed Chairman Ben Bernanke suggested on Tuesday.

 

In his first major policy speech since Congress passed a $700bn (€518bn) financial rescue bill last week, the Fed chairman said that worsening economic conditions and lower inflationary risks mean that the US central bank “will need to consider whether the current stance of policy remains appropriate”.

 

Bernanke was referring to the Fed’s policy on its key federal funds interest rate, which has been held at 2% since April this year.

 

In a speech to business economists in Washington, Bernanke traced the increasing financial crisis facing the US and global markets, noting that “financial systems in the US and in much of the rest of the world are under extraordinary stress”.

 

He reviewed steps taken by the Fed, the Bush administration and Congress in recent weeks to deal with the spreading crisis, leading up to last week’s passage of the Emergency Economic Stabilization Act, which authorises the US Treasury Department to buy up non-performing mortgage loans and mortgage-based securities.

 

Bernanke also noted that a new Federal Reserve funding plan announced earlier on Tuesday will help restore liquidity to the commercial paper market that many companies use to finance daily operations.

 

However, he said, even with the extensive rescue and recovery measures being put into play by the US, “economic activity is likely to be subdued during the remainder of this year and into next year”.

 

But he also noted that falling oil prices mean that inflationary pressures have held steady or eased.

 

The outlook for economic growth has worsened and the prospects for inflation have somewhat improved, Bernanke said.

 

“In light of these developments the Federal Reserve will need to consider whether the current stance of policy remains appropriate”, he said.

 

In Fed-speak, that is seen as a broad hint of another interest rate cut when the Fed next meets on 28-29 October, or even before.

 

($1 = €0.74)

 

To discuss issues facing the chemical industry go to ICIS connect

By: Joe Kamalick
+1 713 525 2653

For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.

Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.

Printer Friendly