Fed Chief: Outlook Bleak, More Cuts Likely

Bernanke Tells Congress Economy Is Deteriorating, Signals Fed Poised To Keep Lowering Rates

(CBS/AP)  Federal Reserve Chairman Ben Bernanke told Congress Thursday that the country's economic outlook has deteriorated and signaled that the central bank is ready to keep on lowering a key interest rate - as needed - to shore things up.

In remarks to the Senate Banking Committee, Bernanke said the one-two punch of the housing and credit crises has greatly strained the economy. Hiring has slowed and people are likely to tighten their belts further, as they are pinched by high energy prices and watch the value of their single biggest asset - their homes - weaken, he warned.

Bernanke said banks have lost so much money on bad mortgages that they are getting stingy - meaning credit for everyone else is getting more expensive and harder to get, reports CBS News correspondent Bob Fuss.

"The outlook for the economy has worsened in recent months, and the downside risks to growth have increased," Bernanke said. "To date, the largest economic effects of the financial turmoil appear to have been on the housing market, which, as you know, has deteriorated significantly over the past two years or so."

Bernanke also said that the "virtual shutdown" of the market for subprime mortgages - given to people with blemished credit histories or low incomes - and a reluctance by skittish lenders to make "jumbo" home loans exceeding $417,000 have aggravated problems in the housing market.

Unsold homes have piled up and foreclosures have climbed to record highs.

"Further cuts in homebuilding and in related activities are likely," Bernanke cautioned.

Given all the dangers facing the economy, the Fed "will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks," he said, indicating additional rate cuts were likely.

Bernanke appeared with Treasury Secretary Henry Paulson and Christopher Cox, chairman of the Security and Exchange Commission, amid increasing concerns that the economy may be drifting into recession.

The troubles in the housing and credit markets threaten to push the economy into its first recession since 2001 - if it hasn't fallen into one already.

Bernanke and Paulson didn't speak of a recession, noting that their forecasts still call for growth, albeit slow growth. However, the Fed and the Bush administration are expected to downgrade their economic forecasts for this year, given all the troubles, Bernanke and Paulson said.

"It would be less, but I do believe we'll keep growing," Paulson told the panel. Bernanke said the Fed's new forecast out next week will "show lower projections of growth ....growth looks to be weak, but still positive."

On Wall Street, Bernanke's bearish assessment of the economy pulled stocks lower. The Dow Jones industrials lost nearly 100 points in morning trading.

The Federal Reserve, which started lowering a key interest rate in September, recently turned much more aggressive. Over the span of just eight days in January, it slashed rates by 1.25 percentage points - the biggest one-month rate reduction in a quarter-century. Economists and Wall Street investors believe the Fed will cut rates even more at its next meeting in March and probably again in April.

"Our economy is clearly in trouble," said the committee's chairman, Sen. Christopher Dodd, D-Conn. Restoring investor and consumer confidence, he said, is critical "if we are going to get back on our feet again."

Bernanke said his forecast is for the economy to continue to endure a "period of sluggish growth." That would be "followed by a somewhat stronger pace of growth starting later this year" as the effects of the Fed's rate cuts and a newly enacted stimulus package begin to be felt. The $168 billion package, which includes rebates for people and tax breaks for businesses, was speedily passed by Congress last week and signed into law on Wednesday by President Bush.

Sen. Richard Shelby, R-Ala., though, believed the energizing impact of the rebates would be "negligible" and likened it to "pouring a glass of water into the ocean."

Even though Bernanke's forecast envisions an improving economic picture later this year, the Fed chief said it was nonetheless "important to recognize that downside risks to growth remain, including the possibilities that the housing market or the labor market may deteriorate to an extent beyond that currently anticipated" or that credit will become even harder to secure.

That's why, for now, Bernanke indicated the Fed is still inclined to lower interest rates.

Yet, that could change, depending on how the economy and inflation unfold.

"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 promoting healthy employment and economic growth while keeping inflation under control.

Inflation should moderate, Bernanke said. Yet last year's steep run-up in oil prices is a reminder that the Fed can't let down its inflation guard and must keep close tabs on the inflation expectations of investors, consumers and businesses. Those expectations can affect their behavior, which can affect the economy.

"Any tendency of inflation expectations to become unmoored or for the Fed's inflation-fighting credibility to be eroded could greatly complicate" the Fed's job, he said.

Stimulus from the new rescue package also should help the faltering jobs market, Paulson said. He estimated that it would create "more than half a million jobs by the end of this year."

Meanwhile, the Bush administration's efforts to help homeowners at risk of losing their homes is paying off.

In the final three months of last year, more than 470,000 received help from the company servicing their mortgages and almost 30 percent of those received a loan modification, Paulson said.

Still, the secretary said more needs to be done. He called on Congress to revamp mortgage giants Fannie Mae and Freddie Mac and modernize the Depression-era Federal Housing Administration. He also asked Congress to pass legislation that will allow states to issue tax-exempt bonds and use the proceeds to help struggling homeowners refinance into more affordable mortgages.

The SEC is exploring the role of ratings agencies in the meltdown of subprime mortgages, Cox said. Critics allege ratings agencies didn't adequately assess risk when assigning ratings to certain complex mortgage securities.

Cox said he expects to receive preliminary reports from the agency's examinations in the coming months and a final report in the early summer.

Bernanke and Paulson have been fighting to keep the economy afloat. Foreclosures have climbed to record highs, financial companies have racked up multibillion-dollar losses from soured mortgage investments, Wall Street has convulsed, and employers have turned cautious in their hiring. Payrolls in January fell by 17,000, the first nationwide job loss in more than four years.

Economic growth practically stalled in the final three months of last year, and some economists believe it may actually be contracting now. By one rough rule of thumb, a recession occurs when there are two consecutive quarters - six straight months - when the economy shrinks.

[rgmiron]

Brainbwb, It sounds good to a piont, I saddly agree that such mega projects must NOW come from Government funding. However my fear is to much Government involvement during construction will destine a Mega Project to certain cost overruns and buracratic confussion. This would be a big mistake.

I have reread and thought about your posts and I have one GREAT BIG disagreement.... that would be a complete show stoper for me, You give way to much authority to the Government in controling the work force. I quote "Let the government hire and pay the Labors".
I have worked in Russia and attended classes in Havana and you are discribing a communist form of labor market. It was a nightmare form of a labor pool. It would be a big, big, BIG mistake to go there, a BIG step in the wrong direction for a fredom loving people, that could take generations to repair.
Under NO condition would I place that much faith and trust in a politically placed buracrat. ultimate power ultimately corrupts, I would fight that tooth and nail, you might as well turn over control of the largest industry in our nation to the government. In time you could say good by to free enterprize, capitalism and our freedom.
I like your ideas about getting wages to the middle classes but why would you change the hire and fire process so drasticly? Lord knows it''s not perfict but why take such a unneeded risk, presenting such a posible nightmareish result.

[gladetryst]

Uhh, economically the Fed caused the mortgage bubble, the IT bubble, the... so they are just trying to fix what they screwed up. Inflation only comes from the Fed, so they have all power over it, if they stopped printing money, then there wouldn''t be much inflation...

[jerkeedoodle]

incog-nito,RE:Given that most Americans...You''re right,don''t vote for McCain.Since all of the democrats have been on vacation for the last seven years,since they all vote for what''s in the best interest of the little guy,and since not one of them take any corporate graft,let''s vote for them!This kind of thinking is EXACTLY why there will never be any REAL change in DC.Dopes like you keep swapping one set of *** for another.In 4 or 8 years,chumps like you will be sniveling about how we "need" a republican in the Whitehouse.It would be real nice if you folks of the "mouthbreathingboogereater" tribe would emigrate somewhere.Siberia has great weather this time of year!

[brianbwb-2009]

"...Talk about an opportunity for Facist or new world order, that really scares me!! Posted by RGMiron

The government is the only way it could come, as the Government is the only body that can print money. However, instead of instantly diminishing the money''s worth by selling it as debt to other countries, which has no positive effect at all on the real economy, the money needs to enter circulation from the bottom, this means that the money need to go directly to those who have done work, as the dollar will then be based on a certain amount of real value.

To mitigate the threat of fascism, such large projects must be performed without regard, and unattached to the political ideologies of flawed politicians. Have the right people, scientists, architects and engineers handle the design phase, let the general population of the affected areas review and refine the system, then let the government hire and pay the laborers, with monitoring to prevent bias, as long as the physical and educational requirements are met, whoever qualifies gets the job.

Rebuilding America is not a 5 or 10 year project, it took a hundred years plus to build the original infrastructure, rebuilding and upgrading it will take at least another 50, and those who already have good paying jobs have no need, and should not be made to "sign up" for government jobs.

The opposite of "trickle down", spread the money at the bottom, and let the big boys compete for it, was this not the original idea of capitalism?

[brianbwb-2009]

Posted by b-easy63

By creating employment opportunities through these mega projects, audited and monitored by a strong system that will instantly and certainly punish swindlers, by putting people to work for a livable wage, and restoring the middle class, the need for illegals will vanish, especially in the face of stiff fines and jail for the employers.

As dictated by the rules of supply and demand, the housing prices must fall, as no one can buy them even now. The fall will bring prices in line with the ability of Americans to pay for them.

Also, $7.50 per will not hire skilled labor, that is unskilled labor rates, and the minimum wage at that, no where did I say that $7.50 per hour should be a forced wage, I only said that there needs to be a guaranteed minimum wage and benefits package, below which no one should labor. Skilled labor will always command a higher price.

Also I don''t posit to have all the answers, they should be discussed, fine tuned, reshaped, but doing nothing and allowing the status quo to continue is not an option, as it will lead to the demise of America, not in 20, or 50 years, but within the next 5.

Rather than simply gainsay, you could help by contributing ideas...

[b-easy63]

Given that most Americans are unhappy about the current administration and the direction of the country, vote for McCain if you want a continuation of the exact same policies that most Americans are unhappy with.

Posted by incog-nito at 12:34 AM : Feb 17, 2008


If the meglamaniac gets the nomination, many Independents will indeed vote for McCAin rather than turning the country over to the beast..er I mean Hilary.

[b-easy63]

like Brianbwb''''s approuch to getting out of this economic mess. The construction industry is the largest in the Nation. By improving our infrastructure we benifit in many ways, money to workers improve and expand the middle class, stimulate service and manufacturing, improve commerce through roads and airports, require education both formal and craft.

Posted by RGMiron at 05:08 PM : Feb 16, 2008


LMAO and just who will buy these houses? The newly laid off? The people making 7.50/hour? Or are we going to import millions with guaranteed loans from their parent country? The fact is--we have more houses than people who can or want to buy them--if you want to keep a business going--you have to have a strong customer base. If you want a strong customer base--they have to be employed and make enough money to spend on your product. If you send your jobs ot of the country or maintain low wages to maximize profits--here is a bit of news--very few will be left to sustain your market--because it will die--as those who are laid off get lower paying jobs--they will not buy your product or use many services--as these services don''t getused--more jobs get cut and so it goes--this is simple really, don''t expect consumers to juggle the balls, if you cut off their hands and ship them overseas or leave them thumbs and a nub to catch the ball with.

[b-easy63]

Fed Chief: Outlook Bleak, More Cuts Likely
Bernanke Tells Congress Economy Is Deteriorating, Signals Fed Poised To Keep Lowering Rates"
~~
I wonder to what degree Mr. Bernanke''''s lifestyle is going to be affected by the recession.

Posted by barbaraf4 at 05:44 PM : Feb 15, 2008


It''s becoming a monthly thing. If the Feds keep lowering the rates--by this summer, they will have to pay people to take loans.

[b-easy63]

Bernanke also said that the "virtual shutdown" of the market for subprime mortgages - given to people with blemished credit histories or low incomes - and a reluctance by skittish lenders to make "jumbo" home loans exceeding $417,000 have aggravated problems in the housing market. "


HERE IS THE IRONY: Banks lent money to people too poor and with shaky or bad credit. Bush and Congress give rebates so these same type of people can spend the money to help businesses. Congress passed a minimum wage increase that will take years to get to 7.50.

The government and banks are willing to do almost anything to help themselves after these people failed them--except the one thing that should have been done about 20 years ago: ENSURE A LIVING WAGE THAT REFLECTS THE ACTUAL COSTS OF HOUSING AND EXPENSES. In other words, if you want or need poor people to enter the housing market--PAY them a wage that can make them competetive in that market. No person making minimum wage now (or even at Hilary''s proposed 9.50/hr) can afford a decent house. If we really need those millions to invest in housing--then we eventually will have to pay them enough so that they can do so.

As for freezing foreclosures--does it really make a difference? If they do not have the money now--how will they get it later? the magic money fairy going to come down and return more money to the workers instead of giving CEOs hundreds of millions in yearly bonuses?

[incog-nito]

Given that most Americans are unhappy about the current administration and the direction of the country, vote for McCain if you want a continuation of the exact same policies that most Americans are unhappy with.

[rgmiron]

I like Brianbwb''s approuch to getting out of this economic mess. The construction industry is the largest in the Nation. By improving our infrastructure we benifit in many ways, money to workers improve and expand the middle class, stimulate service and manufacturing, improve commerce through roads and airports, require education both formal and craft. The problem is financing the projects, with the economy in the crapper, it will have to come by way of Government. The "New Deal", MAN that scares me. Talk about an opportunity for Facist or new world order, that really scares me!!!

[brianbwb-2009]

The first two tag lines under the "business" section;

"Government Agency Predicts Economic Uptick"

"Fed Chief: Outlook Bleak, More Cuts Likely"

One of these two is flay out lying, I say it is the "government agency".

[barbaraf4]

"Fed Chief: Outlook Bleak, More Cuts Likely
Bernanke Tells Congress Economy Is Deteriorating, Signals Fed Poised To Keep Lowering Rates"
~~
I wonder to what degree Mr. Bernanke''s lifestyle is going to be affected by the recession.

[iphyt4u]

$500 million was spent in Iraq today. $500 million of American taxpayer money. No Federal money was spent in my hometown today. You want to know how the Chinese get their oil...they buy it. They keep their troops at home. And their troops buy goods and services within their homeland. Hey Americans, the republicans keep crying wolf, and now I''m laughing so hard I can hardly breathe.

[olebd]

Strange that this news story has been at the top of the business section for over a day now. Wonder how that old stock market is doing?

[tibu987]

Better quote:

Everything is bleak under the evil Bush cabal.

[mcv57]

Why not cut the Defense budget for one year and pump that money into OUR economy? That would stop this depression from coming!

Posted by watcher269

Contrary, ignorant one. To stop the war at this point would cut-off more oil supply; therefore, an economy that is driven on oil would also contrac. Understand, you should read: "The Golden Age" by Ravi Batra, PhD of Economics. It would definitely increase you knowledge of current events.

[underdogus]

FloydZepp..the leftist-Jihadist..

[watcher269-2009]

Why not cut the Defense budget for one year and pump that money into OUR economy? That would stop this depression from coming!

[jwind11]

trillion1, i thought i told you your opinion didnt matter since you can''t spell simple words. not credible.