April 17, 2009 4:01 PM
- Text
Fed Ready To Cut Interest Rates Anew
(CBS/AP)
Federal Reserve Chairman Ben Bernanke pledged Thursday to slash interest rates yet again to prevent housing and credit problems from plunging the country into a recession.
The Fed chief made clear the central bank was prepared to act aggressively to rescue a weakening economy. "We stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks," he said.
Stocks jumped after Bernanke said the Fed was ready to lower interest rates again to ward off a recession: "We stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks," Bernanke said.
But they bobbled up and down before turning narrowly mixed after Kansas City Fed President Thomas Hoenig said later that inflation remains a concern and the stock market is "not the center of our attention." The comments kept alive fears that the Fed may not respond to investor concerns even as it monitors the weakening economy.
After seesawing earlier in the day, the Dow Jones industrials finished up nearly 120 points.
Some economists believe the Fed will slice its key interest rate by a bold half percentage point when the Fed meets next on Jan. 29 and 30. Others, however, think the Fed will go with a more modest one-quarter percentage point reduction, given concerns that high energy prices could spark inflation.
To bolster the economy, the Fed lowered its key rate three times last year. Its last cut on Dec. 11 left the rate at 4.25 percent, a two-year low. Still, Bernanke has come under criticism for not acting more aggressively to deal with the economy's problems.
Worries about the country's economic health have gripped voters, galvanized presidential candidates and spurred the White House and Congress to explore ways to stimulate the economy to avoid a recession.
Presidential historian Douglas Brinkley says this election could turn on whether we slide into recession, CBS News correspondent Anthony Mason reports.
"The bottom line: you're trying to get people to think they're gonna be better off with you in the White House than they are right now," Brinkley said.
The last recession was in 2001, after the dot com bubble burst, reports Mason.
Hiring practically ground to a halt in December, pushing the unemployment rate up to 5 percent, a two-year high, the government said in a report last week that rattled Wall Street and Main Street.
Bernanke, in a speech to a housing and economic forum here, cautioned against reading too much into one report. However, he said that if employment conditions were to continue to deteriorate, that would raise risks to the economy. The big worry is that consumers might cut back on their spending, sending the economy into a tailspin.
Incoming information suggests that the outlook for economic activity for this year has worsened and that the "downside risks to growth have become more pronounced," Bernanke warned.
A housing slump, weaker home values, harder-to-get credit and high energy prices all "seem likely to weigh on consumer spending as we move into 2008," Bernanke said.
"A broken mortgage market means a slow growing housing market, declining home values and a lethargic consumer. Without a consumer, there's no locomotive for American growth," Peter Morici, an economist at the University of Maryland, told Mason.
The Fed chief made clear the central bank was prepared to act aggressively to rescue a weakening economy. "We stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks," he said.
Stocks jumped after Bernanke said the Fed was ready to lower interest rates again to ward off a recession: "We stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks," Bernanke said.
But they bobbled up and down before turning narrowly mixed after Kansas City Fed President Thomas Hoenig said later that inflation remains a concern and the stock market is "not the center of our attention." The comments kept alive fears that the Fed may not respond to investor concerns even as it monitors the weakening economy.
After seesawing earlier in the day, the Dow Jones industrials finished up nearly 120 points.
Some economists believe the Fed will slice its key interest rate by a bold half percentage point when the Fed meets next on Jan. 29 and 30. Others, however, think the Fed will go with a more modest one-quarter percentage point reduction, given concerns that high energy prices could spark inflation.
To bolster the economy, the Fed lowered its key rate three times last year. Its last cut on Dec. 11 left the rate at 4.25 percent, a two-year low. Still, Bernanke has come under criticism for not acting more aggressively to deal with the economy's problems.
Worries about the country's economic health have gripped voters, galvanized presidential candidates and spurred the White House and Congress to explore ways to stimulate the economy to avoid a recession.
Presidential historian Douglas Brinkley says this election could turn on whether we slide into recession, CBS News correspondent Anthony Mason reports.
"The bottom line: you're trying to get people to think they're gonna be better off with you in the White House than they are right now," Brinkley said.
The last recession was in 2001, after the dot com bubble burst, reports Mason.
Hiring practically ground to a halt in December, pushing the unemployment rate up to 5 percent, a two-year high, the government said in a report last week that rattled Wall Street and Main Street.
Bernanke, in a speech to a housing and economic forum here, cautioned against reading too much into one report. However, he said that if employment conditions were to continue to deteriorate, that would raise risks to the economy. The big worry is that consumers might cut back on their spending, sending the economy into a tailspin.
Incoming information suggests that the outlook for economic activity for this year has worsened and that the "downside risks to growth have become more pronounced," Bernanke warned.
A housing slump, weaker home values, harder-to-get credit and high energy prices all "seem likely to weigh on consumer spending as we move into 2008," Bernanke said.
"A broken mortgage market means a slow growing housing market, declining home values and a lethargic consumer. Without a consumer, there's no locomotive for American growth," Peter Morici, an economist at the University of Maryland, told Mason.
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