“The economic situation has become distinctly less favorable,” Fed chairman Ben Bernanke told Congress.
Federal Reserve chair Ben Bernanke spoke of the deep seated problems in the nation’s markets and issued warnings of difficult times ahead but signaled that further rate cuts were not out of the question, today in semiannual testimony on the economy before the House Financial Services Committee.
“The economic situation has become distinctly less favorable,” Mr. Bernanke said, addressing concerns about shaky U.S. credit conditions, rising energy costs, and a rapidly contracting housing market.
“The jump in the price of imported energy, which erodes real income and wages, likely contributed to the slowdown in spending,” Mr. Bernanke said.
“The latest economic projections...show that real GDP was expected to grow only sluggishly in the next few quarters and that the unemployment rate was seen as likely to increase somewhat,” he said.
The chairman discussed the market shocks stemming from the subprime debacle, stating that “heightened investor concerns about the credit quality of mortgages, especially subprime mortgages with adjustable interest rates, triggered the financial turmoil.”
Mr. Bernanke also referred to recent actions taken by the Federal Reserve, including the rate cuts.
While he emphasized that it was necessary to ascertain whether the actions were having their desired effects, he also reminded Congress that all such monetary policies have a lag time, requiring time to gauge their full effect.
Nevertheless, he expressed the Fed's willingness to cut rates further if the situation merited such action.
``The Federal Open Market Committee will be carefully evaluating incoming information bearing on the economic outlook and will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks,'' Mr. Bernanke said.
