WASHINGTON (AP) — saying reserve Federal Chairman Ben Bernanke on Wednesday that the central bank is prepared to give a further boost if the current economic lull persists.
That his twice-a-year economic report to Congress, Bernanke three options would consider that the central bank. One possibility, he said, was another of Treasury bond buying. It would make the third such effort since 2009.
Bernanke indicated that the Fed would only take such action if economic conditions worsened and deflation was resurrected as a threat. Deflation is a destabilizing period of falling prices.
He also said that the Fed was nimble to react if the opposite happened. He said the Fed was ready to raise interest rates that were at record lows for nearly three years, the central bank fears a greater risk of inflation.
"We have to keep all options on the table," Bernanke told the House Financial Services Committee on the first of two days of Capitol Hill testimony. "If we come to the point where recovery is fragile" and inflation drops to zero, so the central bank would consider further incentive options, "he said.
Stocks jumped after Bernanke signaled that the Fed will to take additional measures to boost the sluggish economy. The Dow Jones industrial average rose more than 145 points, or 1.2%, at noon trade. Broader indexes also rose.
In reply to a question about Congress debate on raising the limit borrowing, Bernanke warned that failure to adopt within the time limit that August would trigger a wider financial crisis. He said that the Government defaults on its debt, would throw the "shockwaves through the entire financial system".
The Government reached its limit for borrowing in may, the Finance Ministry has said that Government displays by default on its debt limit not raised by Aug. 2.
The Fed last month agreed to wind up the timetable of its programme to stimulate the economy through purchases of 600 billion dollars in Treasury bonds. But the central bank admitted that the economy had slowed in the first half of the year. The result is lowered its economic growth forecast for 2011 and said unemployment would be less than 8.6% this year.
Since that meeting, the Government reported a second straight month in June and gloomy letting unemployment increased to 9.2% – the highest rate in years.
The Fed has said that temporary factors, such as high gas prices and supply chain disruptions caused by the crisis, Japan is jointly responsible for sluggish.
Bernanke says Fed believe Congress should facilitate these obstacles during the second half of the year. But if the forecast shows the error, he said that the Fed is prepared to do more.
"The possibility remains that the recent economic weakness may prove to be more persistent than expected and that deflationary risks can be revived, which implies a need for further political support," said Bernanke.
Economists noted that Bernanke was careful to balance the possibility for further Fed stimulus with the possibility that inflation could become a problem.
Paul Ashworth, U.S. Chief Economist at capital economics, said the Fed would likely agree on further steps unless deflation emerges as a threat again. Ashworth said a decision would not come until next year.
"The Fed to wait and see if the reduction in economic growth was due to temporary factors and if inflation falls back," said Ashworth.
The Fed started his final round of bond purchase by deflation worries increased. Bond-buying program, which ended in June, it was Fed the second round of "quantitative easing". It is a term that economists used a tool the Fed can be used to bring down long-term interest rates by buying Government bonds.
The topic of new incentive was raised at the June meeting where Fed policymakers agreed to terminate the last programme. Some members said the Fed should be open to further action on growth failed to pick up enough to "meaningful" reducing unemployment, according to the minutes of the meeting of June 21-22.
Others expressed concern about inflation and said that the central bank would need to take measures to begin removing its low-interest rate policy sooner than currently anticipated. "
The Protocol selected, a division of Fed officials are most concerned that the economy is growing too slowly, including Bernanke, and some regional bank presidents who are concerned that the Feds policy could trigger high inflation.
Bernanke spoke to minority concerns in his testimony. He said that the central bank would be prepared to begin to raise interest rates more quickly than currently contemplated, if prices do not decline.
The Fed has kept its main interest rate at record low close to zero since December 2008. Most private economists believe the Fed will not start to raise interest rates until next summer. And some say that the Fed won't increase up to 2013, based on the slumping economy.
Bernanke confirmation when the Government released a dismal jobs report last week.
Economy to just 18,000 jobs last month, the fewest in nine months. The may figures were revised downwards and to show only 25,000 jobs added — fewer than half of what was reported from the beginning.
Companies withdrew heavily on rental after adding an average of 215,000 jobs per month from February to April. Economy often need to add 125 000 jobs per month just to keep pace with population growth. And at least twice that many jobs needed to reduce unemployment.
0 comments:
Post a Comment