WASHINGTON, Feb. 27, 2008
Fed Chief Hints At More Interest Rate Cuts
"Sluggish Economic Activity" To Persist, Bernanke Tells House Committee
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(AP / file)
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He is fighting to keep the economy afloat after mighty blows from the housing and credit crises, while trying to contain inflation.
For now, the priority is shoring up the economy, Bernanke suggested in an appearance before the House Financial Services Committee. He pledged anew to slice a key interest rate and help the economy, which many fear is on the verge of a recession, if not already in one.
"The economic situation has become distinctly less favorable" since the summer, the Fed chief told lawmakers.
Since then, the housing slump has worsened, credit problems have intensified and the job market has deteriorated.
New home sales were worse than sluggish, reports CBS News correspondent Anthony Mason. They fell nearly 3 percent last month to the lowest level in 13 years. The Northeast, down more than 10 percent, took the biggest hit; sales also dropped in the Midwest and the South. Only the West showed a modest gain.
Oil meanwhile is headed the other way, leading a surge in inflation, Mason adds. The Fed's official mission is to fight inflation usually by raising interest rates. But this time there may be little Bernanke can do.
Bernanke said that combination of bad news has made people and businesses more cautious about spending and investing, further weakening the economy.
The country should prepare for "sluggish economic activity in the near term," Bernanke said. Concern is growing about the possible return of stagflation, when stagnant growth is combined with rising inflation, for the first time since the 1970s.
Were energy prices to continue to rise at a sharp clip - something the Fed does not anticipate - it would "create a very difficult problem" for the economy, Bernanke said. Inflation would spread and growth would be further restrained, he said. If that happened, it would be a "very tough situation," he added.
The Fed is prepared to lower rates again to bolster economic growth, Bernanke said. The Fed "will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks," he said, sticking closely to assurances he offered earlier this month.
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The central bank started lowering a key interest rate in September. Over just eight days in January, the Fed shaved 1.25 percentage points, the biggest one-month reduction in a quarter-century. Economists and Wall Street investors predict the Fed will cut rates again at its next meeting, March 18. Some analysts believe rates will drop again in April.It is very difficult to know, and we've been wrong before.
Ben Bernanke, Federal Reserve Chairman, on the future of home pricesBrian Bethune, economist at Global Insight, said Bernanke's remarks "keeps the door wide open for further rate cuts."
On Wall Street, the Dow Jones industrials edged up 9.36 points.
Bernanke said that at some point this year, the Fed will need to "assess whether the stance of monetary policy is properly calibrated" to foster the Fed's objectives of price stability "in an environment of downside risks to growth."
He was hopeful that previous rate reductions and the $168 billion economic aid plan of tax rebates for people and tax breaks for business would energize the economy in the second half of 2008.
As the Fed chief began his first day of back-to-back appearances on Capitol Hill to discuss the economy, there was more bad news on the housing and manufacturing fronts. Sales of new homes fell in January for a third straight month. Orders to factories for big-ticket manufactured goods dropped in January by the largest amount in five months.
Bernanke has come under some criticism for not acting sooner in cutting rates. But Alabama Rep. Spencer Bachus, the committee's top Republican, expressed sympathy. "There is perhaps no other public figure in America who has been subjected to as much Monday morning quarterbacking as you have" over the past months, Bachus said.
The committee chairman, Rep. Barney Frank, D-Mass., suggested the economy is not suffering through a garden-variety slowdown.
He made clear that he wasn't trying to put the R-word - recession - in Bernanke's mouth. "I'm not going to be responsible for the nervous people at the stock market who overreact when you twitch your nose," Frank told Bernanke. "But the problems we now have are different."
Many of those woes are linked to the housing meltdown. Bernanke was asked when he thought the housing market might stabilize. It's possible, he said, that by "later this year it will stop being such a big drag directly" on the economy. But home prices probably will decline into next year, he added.
"It is very difficult to know, and we've been wrong before," Bernanke said.
Even as the Fed tries to bolster the economy, it must remain mindful of inflationary pressures, Bernanke said.
Oil prices, which have set records, briefly shot past $102 a barrel on Wednesday; prices eased, but still remain close to $100 a barrel.
"Should high rates of overall inflation persist," Bernanke said, "the possibility also exists that inflation expectations could become less well-anchored." If people think inflation is escalating, they will act in ways that could make things even worse, a sort of self-fulfilling prophecy. Bernanke said that could complicate the Fed's job of trying to nurture growth while keeping inflation under control.
If oil prices continue to skyrocket this year, it would be "hard to maintain low inflation," Bernanke acknowledged.
© MMVIII, CBS Interactive Inc. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. The Associated Press contributed to this report.
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Best-selling author Mitch Albom on his first nonfiction work since "Tuesdays with Morrie."
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See all 36 CommentsDon''''t worry retail stores!!!! Bush and the idiots (sounds like a band but it really is the name of the stupid Bushmeister and the idiotic, azz kissing Congress) are putting together a stimulus package to save you. It goes like this:
1. They borrow 161 billion dollars and give it to the low to mid income American taxpayers.
2. They beg the tax payer to forgo bills/debt and just go out and spend it all at your stores.
3. They have their fingers crossed that people are too ignorant or irresponsible to use the rebate for a bill and actually go out and buy a few things.
4. After each of them spends maybe 25.00 apiece at your store--you are stupid enough to see it as an incentive--and you go out and build new stores and hire lots of new workers to capitalize on the money that ...uhmmm...they no longer have...cuz they already...uhmmmm..spent it at your store.
5. Anyhoo. The plan is for all sides to ignore the dominoes falling and to plant yet another set at the end of the stack. Bush and the idiots only need this to work until Jan 29. 2009 after which (as far as Dubya is concerned) the economy can let ''''er rip.
1) CANCEL YOUR CABLE / SATTELITE TV: let the corporate media moguls (and their advertisers) know that you will no longer pay for their propaganda.
2) STOP INVESTING YOUR MONEY ON WALL ("WAR") STREET: corporate America is selling out the middle class to the lowest global bidder and using our own money to do it; the financial markets will push for anything that increases profits - especially war .. invest your money in land, real estate, gold and silver.
3) SUPPORT LOCAL ECONOMIES !
- Buy from local manufacturers, local retailers, local craftspeople/artisans, etc.
- if possible, BURN WOOD for heat;
- support local ORGANIC growers or grow some of your own food;
- implement alternative energy sources (solar, hybrid autos etc ..)
- develop local means of commerce not based on the failing US dollar.
4) AFFORDABLE HEALTH CARE BEGINS WITH YOU - healthy eating habits and exercise will create less demand on the system meaning lower costs. You%u2019ll have plenty of time to work out once you UNPLUG THE TV DRUG.
5) STOP UNNECESSARY CONSUMPTION & STOP USING YOUR CREDIT CARD !
6) DECENTRALIZE ! - the global economy is nothing more than a ploy to centralize power, control and wealth into the hands of an elite few - blinded by misinformation, the American people are buying right into it - the rich get richer and the middle class is quickly becoming the working poor.
Prepare to be hungry america, the Zionist are wiping out the middle class.
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Posted by FloydZepp at 06:48 PM : Feb 27, 2008
I agree. I see no point in adjusting the FFR, (Federal Funds Rate), any further. The last two cuts had virtually no impact as far as stimulating the economy. The only immediate impact was an almost immediate increase in the prices of consumer goods. Not good for the average American who already is having a tough time making ends meet.
Posted by davidlar2 at 07:07 PM : Feb 27, 2008
What we need is another Carter-Obama anyone??
And out of control inflation was the key element in stagflation that had to be tamed by Volker before the economy could recover.
Posted by davidlar2 at 06:07 PM : Feb 27, 2008
Guess who prints the money, 65 billion in the last 6 months, you say the supply of is out of control; the Federal Reserve a privately run company.
The 1970s was stagflation by the way.
That''''s pretty funny. Your fishing out of your hat, but you''''re pretty funny. :-P
Posted by peacedreamer at 06:15 PM : Feb 27, 2008
No they haven''t your lying your eyballs out.
That''s pretty funny. Your fishing out of your hat, but you''re pretty funny. :-P
Uncontrolled inflation is far more destructive than a short term recession. With the 1970s in view, what is the logic behind more rate cuts when inflation and growth in the money supply are out of control?
Posted by neoconism at 04:09 PM : Feb 27, 2008
is more like it
Posted by neoconism at 04:09 PM : Feb 27, 2008
no they havent....you just made that up
Might take more this time... how about slashing the bloated military budget and reassigning the savings to well targeted government programs.
that is the republican motto. Be afraid of the spooky enemy we are going to tell you about. give us all your money and power and freedoms and in return we will protect you from the bogeyman we created.
do not think for yourself, just listen to the corporations... they have all of our best interests in mind. shame on those nasty government regulators for trying to shame those kindly corporattion.
If you were a real man you would fend for yourself and realize those handouts are for the rich
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