Bernanke: Fed Ready To Ease Credit Further

Federal Reserve Chairman Ben Bernanke assured Congress on Wednesday that the Fed is ready to further loosen its grip on credit to avoid recession.

WASHINGTON, Feb. 27 (Kyodo) — Federal Reserve Chairman Ben Bernanke assured Congress on Wednesday that the Fed is ready to loosen its grip on credit further to underpin a U.S. economy that appears to be on the brink of recession.

The central bank chief also said in his twice-yearly congressional testimony that the Fed will take care to prevent inflation from getting out of control amid the easing campaign.

He said the Fed ''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.''

''A critical task for the Federal Reserve over the course of this year will be to assess whether the stance of monetary policy is properly calibrated to foster our mandated objectives of maximum employment and price stability in an environment of downside risks to growth, stressed financial conditions and inflation pressures,'' he said.

The Fed launched an aggressive campaign in September to slash interest rates in a bid to curb borrowing costs and stimulate growth, with the target for the federal funds rate down to 3 percent by the end of January. The next meeting of its policy-setting Federal Open Market Committee will take place on March 18.

''The incoming information since our January meeting continues to suggest sluggish economic activity in the near term,'' Bernanke said. ''The risks to this outlook remain to the downside.''
Some private economists point out the U.S. economy — the world's largest — has already slid into a recession as U.S. subprime mortgage woes are beginning to have detrimental effects on the real economy.

U.S. growth slackened to an annual pace of 0.6 percent in the fourth quarter of 2007, down sharply from a 4.9 percent clip the quarter before. U.S. employers cut jobs in January for the first time in four years.

Last week, the Fed revised downward its projection for U.S. economic growth this year to be between 1.3 percent and 2.0 percent, down from the 1.8 percent to 2.5 percent in its previous estimate released last October, citing the prolonged housing slump and bottlenecks in credit markets.

''Financial markets continue to be under considerable stress,'' Bernanke said. ''We will continue to monitor financial developments closely.''

On inflation, the Fed chief pointed to existing ''upside risks'' to its projection, including the possibilities that energy and food prices do not level off or that the pass-through to core prices from higher commodity prices and from the weaker dollar may be greater than expected.

''Indeed, the further increases in the prices of energy and other commodities in recent weeks, together with the latest data on consumer prices, suggest slightly greater upside risks to the projections of both overall and core inflation than we saw last month.,'' he said.

The Fed last week raised the estimate of personal consumption expenditures to be between 2.1 percent to 2.4 percent this year, which is higher than the last October's projection of 1.8 percent to 2.1 percent.

Bernanke expressed concern that should high rates of overall inflation linger, the possibility also exists that inflation expectations could become less well anchored.

''Any tendency of inflation expectations to become unmoored or for the Fed's inflation-fighting credibility to be eroded could greatly complicate the task of sustaining price stability and could reduce the flexibility of the FOMC to counter shortfalls in growth in the future,'' he said.
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