Fed Chief Dampens Recovery Expectations

Market Stabilization Only First Step; "The Way Forward" Won't Be Easy, Bernanke Warns

(CBS/AP)  The country's economic health won't snap back quickly even if badly needed confidence in the U.S. financial system returns and roiled markets finally calm, Federal Reserve Chairman Ben Bernanke cautioned Wednesday.

"Stabilization of the financial markets is a critical first step, but even if they stabilize as we hope they will, broader economic recovery will not happen right away," Bernanke said in prepared remarks to the Economic Club of New York.

Meanwhile, the country has sunk deeper into an economic rut, the Federal Reserve reported Wednesday.

The Fed's latest snapshot of business conditions around the nation showed the economy continued to lose traction in the early fall, reflecting mounting damage as financial and credit problems worsened.

Economic activity weakened across all of the Fed's 12 regional districts, according to the report. Consumer spending - the lifeblood of the economy - slumped in most Fed regions. Manufacturing also slowed in most areas.

Bernanke said the government's new powers under the $700 billion financial bailout package signed into law two weeks ago should help reduce risks to the economy.

Prior to his speech, a report on U.S. retailers dropped in September showed sales at a two-year low. Uncertainty about the economy - and their own financial fortunes - probably will force consumers and businesses alike to hunker down further, spelling more problems for the already troubled economy.

And on Wall Street, stocks remained down, plummeting during afternoon trading.

Tapping that new authority, the Treasury Department announced Tuesday that it will inject up to $250 billion in U.S. banks in return for partial ownership. It is hoped that banks will use the cash infusion to rebuild their reserves and lend money more freely to businesses and consumers.

The government also plans to buy rotten mortgages and other bad debts held by banks, another new power granted by the bailout package.

Speaking to criticism that the plan only benefits the big Wall Street banks embroiled in the financial crisis, U.S. Treasury Secretary Henry Paulson told CBS' The Early Show Wednesday, "This is only about the American people. This is only about Main Street."

The rationale behind capital injections and buying bad debts is to unclog credit. That should help financial markets function more normally again and - in time - help the wobbly economy get back on stronger footing.

"We now have the tools we need to respond with the necessary force to these challenges," Bernanke told the group. Still, he warned, "I am not suggesting the way forward will be easy."

In his prepared remarks, Bernanke did not give a fresh clue about the Fed's next move on interest rates.

In a coordinated assault on the global financial crisis last week, the Fed and other major central banks ordered hefty rate reductions. The Fed dropped its key rate to 1.50 percent, from 2 percent, in an emergency move.

Many economists said the Fed might cut rates again at its regularly scheduled meeting later this month, or may be later this year.

Bernanke said it is likely economic activity will "fall short of potential for a time."

A growing number of analysts predict the economy will actually shrink in the final three months of this year and the first three months of next year, meeting the classic definition of a recession.

"Ultimately, the trajectory of economic activity beyond the next few quarters will depend greatly on the extent to which financial and credit markets return to more normal functioning," Bernanke said.

Even with a flurry of radical steps recently taken by the Fed, the U.S. government and others around the world, "credit markets will take some time to unfreeze," Bernanke said.

The economy had been losing traction even before the financial crisis intensified last month. Fallout from the housing market's collapse continues to be the primary source of weakness for the economy and for financial markets.

All the problems have led to employers cutting jobs and other investments. Nervous consumers have hunkered down. Slowdowns overseas is sapping export growth, which had been a key source keeping the economy afloat.

"These restraining influences on economic activity, however, will be offset somewhat by the favorable effects of lower prices for oil and other commodities on household purchasing power," Bernanke said.

With the economy slowing, inflation should moderate, he added.

[txgrouch2007]

Ruling Elite = Rich, no problems
Congress = Rich, no problems
President and VP = Rich, no problems
Citizenry = Broke, soon to be starving
Posted by singinrich at 07:55 PM : Oct 15, 2008

Sounds like it''s time for the torches and pitchforks.

And rope. LOTS of rope.

[Ranger-phx]

"SINGINRICH" Has it about 90% correct; IF, the bank bailout does not unfreeze the credit markets.In which case we will starve. Here is that it works I think it will help the common man, alas not the POOR--who can''t borrow anyway!!

[tincup356]

keep giving us the shaft congress, YOUR TURN IS NEXT, if every incumbent is not voted out of office we will continue to suffer from corrupt decisions altered by the great lobby dollar. ENOUGH IS ENOUGH, this same congress sent us into a war that was a lie, this economic crisis appears to be a very manipulated lie that is a ripoff like the war except on a much grander scale. I heard on the news where its coming out that some congressmen were told that if they voted against the bill the second time around that the Govt. was considering calling Martial Law, How absolute sick is it that the American people cannot see that these people in power now have been and will use more tactics to take our rights completely away and it is imperative that we remove all incumbents from office NOW. Time for Americans to stand up , united and bring down the perpetrators of the demise of our great country....AMEN

[alpinefir]

They are already talking that they will need one to two trillion in addition to what we have already given them. The bailout still might no work even with.

[cdfoxtrot4]

Usually, when government says something, especially if it''''s Bush, liberals say the opposite will happen.

Well, that means we''''re about to have a prosperous future.

Posted by hypnotoad72

The world learned the hard way that Bush is a moron and wrong just about all the time. It''s not just "liberals" who formed that view and, belatedly, more than 70 per cent of Americans have finally come to realize what a complete spa_stic he is.

[cdfoxtrot4]

Shouldn''t he be lying and saying how great things are, in order to get his Republican ****** buddy elected?

[hypnotoad72]

When the government admits that things are not going too well, that means that things are bad, very bad.

Posted by incog-nito
--

Usually, when government says something, especially if it''s Bush, liberals say the opposite will happen.

Well, that means we''re about to have a prosperous future.

[latrocinor-2009]

kissrosa15 and have your lips rot off with STD fungus.

[latrocinor-2009]

The only surprise t me was that the Dems fell for Bush''''s lies yet again, and yet again we are going to be out 2.5 to 3 trillion.

Posted by brianbwb


Why don''t you run for President?

[harbinger09]

If Bush and the rest want us to spend our way to a healthy economy, they need to give us a bailout. I personally need about 560K to clear my debts, then I promise to take all my credit cards and shop every single day, to do my bit. Again. LOL

[incog-nito]

When the government admits that things are not going too well, that means that things are bad, very bad.

[brianbwb-2009]

Posted by kissrosa15

You must be new here, so I''ll give you one warning before you get reported for abuse, no pimp spamming on these threads, we argue and call some names, but porn spamming is almost universally condemned here.

Consider yourself warned.

[brianbwb-2009]

I knew when Bernanke and Paulson first started lying on TV that it was going to cost way more than $700 billion.

Paulson said the number was so large that they wanted a "Bazooka" to be able to get the job done.

I laughed, he wanted "a bazooka" to make up for what he doesn''t have personally, there was no way a problem that froze a sum greater than the entire world''s GDP could be loosened with that relatively smaller sum, I knew from the first day, and posted here, that Bush was ripping us off yet again.

The only surprise t me was that the Dems fell for Bush''s lies yet again, and yet again we are going to be out 2.5 to 3 trillion.

[tomar0317]

so much for the bail-out it seems.

[txgrouch2007]

Talked to a broker today, he said we''''re heading down to somewhere in the 6,000-6,500 range before it bottoms out. And as for a substantial recovery, he said the spring of 2011.
Posted by iphyt4u at 04:49 PM : Oct 15, 2008

Wow, that''s EXACTLY what I calculated, based on the 1929 crash.

[iphyt4u]

Talked to a broker today, he said we''re heading down to somewhere in the 6,000-6,500 range before it bottoms out. And as for a substantial recovery, he said the spring of 2011.

[gop_will_win]

Quit whining you liberals! This is all Clintons fault! It is due to the fantastic job President Bush has done that he held it back so long.

[sumarongi1]

These are the same courts who should have been slapping financiers into irons. Where do you think their hands are. They may have their own cookie jar, but their hands are still in it.

[txgrouch2007]

Ben Bernanke is a Baby Boomer. So is Paulson, Bush, both Clintons, Bill Gates, and Joseph Hazelwood.

60% of Congress is Boomers.

That could explain why our government is acting like a bunch of spoiled brats.

VOTE THEM ALL OUT!!!

[culturechang]

Dont worry, the govt is now going to become a stock investor in financial stocks. I wonder where in the Income Tax Amendment it said or implied anything about this use of federal tax money. Where are the checks and balances? Where are the federal judges who should say NO. This is not a constitutional use of federal govt money.