Fed ready to offer additional support to US economy: Bernanke
18 Jul 2012
Chairman of Federal Reserve, Ben Bernanke told lawmakers yesterday that the Fed stood ready to offer additional monetary support to a US economy that had slowed significantly in recent months.
He told Senate Banking Committee, Europe's debt crisis had led to tighter debt conditions, which was holding back recovery amid uncertainty surrounding US fiscal policy.
Financial markets had been looking to Bernanke's testimony for any signs the central bank of a third round of bond purchases in the offing to support the economy, but Bernanke's message centred mostly around watchful waiting that the central bank's policy panel delivered in June.
"Reflecting its concerns about the slow pace of progress in reducing unemployment and the downside risks to economic growth, the committee made clear at its June meeting that it is prepared to take further action," the chief said in his prepared remarks on the Fed's semi-annual monetary policy report.
The Fed has not changed the near zero borrowing rate since December 2008 and has bought $2.3 trillion in government and mortgage-related debt as it sought to keep long-term interest rates lower.
With the recovery flagging, it promised to hold down rates at the levels until at least 2014, extending the average maturity of bonds in its portfolio in a further bid to keep long-term borrowing costs down.
The Fed's efforts, though, have failed to deliver the desired results with economy growing too slowly to lower unemployment, US gross domestic product expanded at a lacklustre 1.9 per cent annual rate in the first quarter, and according to economists, its second quarter performance was even weaker.
According to Bernanke the recent deterioration in the labour market suggested the nation's 8.2 per cent jobless rate would rather gradually, admitting for the first time that purely seasonal factors could not be cited to be the reason for the softness.
At the hearing, lawmakers from both ends of the political spectrum sought to lobby the Fed to ramp up its support for growth.
According to Bernanke the risks of a surge in inflation were low and that there was a modest risk of a broad-based decline in prices.
He added Fed policymakers would consider taking a number of steps to further stimulate growth if it became clear the labour market was not looking up or if deflation risks were rising.
These included additional bond buying whether Treasury debt or mortgage-backed securities -- lending through the Fed's emergency loan window, and cutting the rate the Fed paid banks on reserves held at the central bank, he said.
