WASHINGTON, Oct. 7, 2008
Fed Chief Warns Of Prolonged Economic Pain
Bernanke's Gloomy Forecast May Open Door Wider To Interest Rate Cut
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Fed Chairman Ben Bernanke is seen on a television screen on the New York Stock Exchange trading floor, Tuesday Oct. 7, 2008, during his luncheon address to the National Association for Business Economics. (AP Photo/Richard Drew)
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The Fed chief's more gloomy assessment appeared to open the door wider to an interest rate cut on or before Oct. 28-29, the central bank's next meeting, to brace the wobbly economy.
Bernanke said the Fed will "need to consider" whether its current stance of holding rates steady "remains appropriate" given the fallout from the worst financial crisis in decades.
If the Fed does lower its key rate from 2 percent it would mark an about-face. The Fed in June had halted an aggressive rate-cutting campaign to revive the economy out of fear those low rates would aggravate inflation. Since then, financial and economic conditions have deteriorated, while inflation pressures have calmed, giving the Fed more leeway to again cut rates.
"The outlook for economic growth has worsened," Bernanke said in prepared remarks to the annual meeting here of the National Association for Business Economics.
All told, economic activity is likely to be "subdued" during the remainder of this year and into next year, Bernanke said. "The heightened financial turmoil that we have experienced of late may well lengthen the period of weak economic performance and further increase the risks to growth," he warned.
Many believe the country is on the brink of, or already in, its first recession since 2001.
White House Press Secretary Dana Perino said Tuesday "I don't think that we know" if we are in a recession but that the nation is in a "very difficult situation," reports CBS News White House correspondent Mark Knoller.
Later, Perino repeated that the classical definition of "recession" is two successive quarters of negative economic growth - and that she said is not the case now. But she said that "clearly, we're in a very distressing situation," and the 3rd quarter numbers for the economy will be "nothing to write home about," Knoller reports.
Consumers - major shapers of economic activity - have buckled under the weight of rising joblessness, shrinking paychecks, hard-to-get credit, declining net wealth and tanking home and stock values. All the strains are "now showing through more clearly to consumer spending," Bernanke said.
Meanwhile, worsening sales prospects and a heightened sense of uncertainty have begun to weigh more heavily on businesses, making them more cautious to hire and to invest in their companies, he said.
Employers cut jobs in September at the fastest pace in more than five years, the government reported last week. Payrolls were slashed by 159,000 last month alone. It was the ninth straight month of job losses. A staggering 760,000 jobs have disappeared so far this year.
The financial and credit crises, which took a turn for the worst in September and continue to stubbornly persist, are likely to "increase the restraint on economic activity in the period ahead," Bernanke said.
Even households with good credit histories are now facing difficulties obtaining mortgages or home equity lines of credit, he noted. Banks are also reducing credit card limits and denial rates on auto loan applications are rising, he said.
Banks, too, are feeling the strain of a lockup in lending, particularly in the market for commercial paper.
To that end, the Fed on Tuesday announced a radical plan to buy massive amounts of this short-term debt in an effort to break through a credit clog that is imperiling the economy.
"The expansion of Federal Reserve lending is helping financial firms cope with reduced access to their usual sources of funding," Bernanke explained.
Invoking Depression-era emergency powers, the Fed will begin buying commercial paper - short-term funding that many companies rely on to pay their workers and buy supplies.
Bernanke believed the Fed's bold actions - along with the $700 billion financial bailout signed into law by President Bush on Friday - will help restore confidence in financial markets and help them function more normally.
He also defended the timing of the actions by the Fed and the Bush administration. "We have learned from historical experience with severe financial crises that if government intervention comes only at a point at which many or most financial institutions are insolvent or nearly so, the costs of restoring the system are greatly increased. This is not the situation we face today," he said.
Meanwhile, government data show consumer borrowing fell in August for the first time in more than a decade as households, battered by rising job layoffs and the worsening economy, cut back sharply on their use of credit. The Fed said Tuesday that consumer borrowing fell at an annual rate of 3.7 percent in August. It marked the first time that total borrowing had fallen since a 4.3 percent rate of decline in January 1998.
© MMVIII, CBS Interactive Inc. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. The Associated Press contributed to this report.
Michelle Obama tells how her role as the First Lady has changed her perspective.
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See all 40 CommentsAnd, we''re suppose to believe anything he has to say?!
Not likely, mate!!
I vote ''no confidence'' in HIM or this GOVERNMENT!
LMAO!
There is this address in Crawford, Texas...
Now we witness the demise of the British East India Company Paper Empire.
Time to let this house of cards fall once and for all so that nations can rid itself of ''globization'' and practice ''national soveriegnty'' and start trading goods for goods not ''goods for paper money''.
PAPER MONEY IS GOOOOONEEEEEE FOR GOOOOOOODDDDDDD!!!
Posted by bm6005 at 10:36 PM : Oct 07, 2008
I''ve got the rope.
Which mansion do you want to go "Christmas caroling" at first?
Posted by lastdance127 at 06:48 PM : Oct 07, 2008
osted by alphaa010 at 07:02 PM : Oct 07, 2008
Nobody, and I mean NOBODY takes your repetitive, hysterical, retarded cut/paste posts seriously.
Posted by easeup at 08:41 PM : Oct 07, 2008
I do. And I agree.
YOU''RE the one clogging up the boards.
Posted by Demongirl60
We did!!!
I forgot you.....
Posted by lastdance127 at 06:48 PM : Oct 07, 2008
osted by alphaa010 at 07:02 PM : Oct 07, 2008
Nobody, and I mean NOBODY takes your repetitive, hysterical, retarded cut/paste posts seriously.
You just clog the boards up.
LEARN TO GROW YOUR OWN FOOD,
LEARN TO CAN YOUR OWN FOOD,
BUY UP ALL THE PRE-1964 SILVER COINS YOU CAN FIND. ..
---------BECAUSE---------
WHILE YOU WERE WORRIED ABOUT YOUR;
401K''''S AND KISSING BUTT TO GET A PROMOTION,
I WAS LEARNING TO DO THE ABOVE MENTIONED THINGS.
GET READY TO END YOUR KIDS ENGLISH HORSE RIDDING LESSONS, AND IF YOU DON''''T KNOW HOW TO GROW YOUR OWN VEGGY GARDEN,...PREPARE TO PAY PEOPLE LIKE ME $40 FOR A CAN OF MY CANNED STEW,...OR,...YOU''''LL HAVE TO FIGHT OVER THE LAST CAN OF TUNA DOWN AT YOUR LOCAL GROCERY STORE LIKE DURING THE NEW ORLEANS HURRICANE EVENT.
NO, I DON''''T LIVE IN THE WOODS,
YES I DO HAVE A COLLEGE DEGREE.
BUT MY FAMILY SAW THIS COMING YEARS AGO WHEN TV COMMERCIALS BOASTED THAT "YOU CAN BUY FURNITURE TODAY AND NOT PAY A DIME FOR TWO YEARS."
HA,...AMERICANS NEED TO LEARN TO DELAY SELF-GRATIFICATION.
NOW WE''''LL ALL PAY.
All the local places are sold out. Seems there''s been a run on pitchforks the past few days. Nobody knows why.
Lord have mercy on me for what I''m thinking right now.
Posted by random_radar at 07:11 PM : Oct 07, 2008
Yes. With tighter lending, a shrinking money supply may cause DEFLATION.
Your paycheck goes down. But your mortgage payment doesn''t.
The foreclosure rate hasn''t even STARTED to go up yet. You haven''t seen anything yet.
Endorsed by each John McCain Supporter
The Bush NAZI Fascist Regine
Fabricated Reports - Intentionally Delivered to
the American people to Falsely and Fraudulently
Advocate a War !
Ordered Criminal Wiretaps - Criminal Surveillance Techniques
FDA = Lead Painted Toys - Defective Merchandise
Tainted and Poisoned Food - Destined for The American Family
Granting Immunity to Blackwater
(Murder of Women and Children-Smuggling Arms and Weapons
Halliburton - (No Bid Defense Contracts)
Kellogg, Brown & Root -
(Kidnapping - S*e*x*ual Assault and R*a*pe) Again
Selling of and Instructions how to use
Nuclear Weapon Technology
Allowing Millions of People into Home Foreclosure
because of Intentional Fraud
Financial BAIL OUT for Criminal Bankers and Criminal Lenders
The FBI - A Criminal Organization
Outsourcing good paying American Jobs for
SLAVE LABOR and CHILD FORCED SLAVE LABOR
An INSTITUTION of SLAVERY
Ordering and Approving of : Rape, Child Sodomy,
Torture and Murder of people within US Detention Centers
(Guantanamo Bay)
POLITICIZED The Federal Civil Service with Appointments
The Republican NAZI Fascist Party Created :
ECONOMIC STRIFE .. That is Being used as a Weapon to :
ELIMINATE a DEMOCRACY and REPLACE IT - With
The TOTALITARIAN DICTATORSHIP of : A NAZI FASCIST RULE
Against the American People
The DELUSIONAL of GRANDEUR DISORDER of each :
John McCain Supporter ! !
to Wall Street, China will be taken over soon. God
forbid the people elect a Hussein for Pres. we will
really be in a mess!!!!!!!!!!!!!!
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