WASHINGTON (Reuters)-Federal Reserve Chairman Ben Bernanke said on Wednesday the central bank is ready to ease monetary policy further if the economy weakens and inflation moves down, including policy makers actively considering additional stimulus.
While you are in a view that the recent economic softness would eventually pass, he appeared less sure of this projection--and more willing to consider the possibility of another round of stimulus.
"The possibility remains that the recent economic weakness may prove to be more persistent than expected and that deflationary risks can reemerge, implying a need for further political support," says Bernanke's House of Representatives Committee of the United States for financial services.
Bernanke indicated Fed forecasts for June, which has already been adjusted down significantly from April, had not been incorporated in current data, in particular last Friday's disappointing employment report. It showed job growth essentially ground to a halt in May and June, while the jobless rate up to 9.2%.
U.S. stocks, which have taken a drubbing over the past week on fear EU debt worries and concerns about the Economic Outlook U.S., gathered 1.2%, while the Treasury bond prices and the dollar went.
Asked whether the Fed would be willing to initiate another bond purchase program if the economy slumps, Bernanke said: "we have to keep all options on the table. We do not know where the economy should go. "
Pressed on the budget, Bernanke reiterated his warning that failure to raise U.S. debt ceiling would be a serious blow to the global economic recovery.
"Cut programs or raise taxes in a way that will reduce aggregate demand ... will adversely affect the economy," he said.
Minutes from Feds June meeting, released Tuesday, showed some policy makers believe that the Fed should be ready to give more support to industry on recovery, rekindling the threat of a debilitating downward spiral in prices and wages.
Others in setting Federal Open Market Committee, thought, however, inflation risks may force the central bank to withdraw stimulus sooner than currently anticipated.
DOOR OPEN For QE3
Some investors still, given the change in harmony, games more dovish members of the Committee would prevail in the pursuit of a third round of quantitative easing if the economy continues to deteriorate.
-My first reaction was "here we come QE3," says Jack Ablin, chief investment officer Harris Private Bank in Chicago. "We suspect that the Fed would come with some sort of QE3 in the light of the disruption that surrounds the sovereign debt markets."
Bernanke failed in detail when it comes to Europe, but Fed Chief outlook on U.S. growth prospects was understandably cautious.
After recovering from the steepest recession in generations from Summer 2009, the U.S. economy lost momentum in recent months. Gross domestic product expanded only 1.9 percent during the first three months of the year and second quarter looks to have been much better.
Bernanke is held to the view that the recent weakness was partly due to temporary factors such as high energy costs and the effects on global industry from Japan's earthquake and tsunami.
But he conceded the labour market is still weaker than the Fed wants.
"The latest data shows that the continued weakness in the labour market," Bernanke said.
Bernanke defended the second round of bond purchases against critics who said it would have been ineffective.
He said Fed estimates round two of quantitative easing, or QE2, reduced long term interest rates of between 0.1 and 0.3 percentage point, Bernanke said would be roughly equivalent to 0.40 to 1.20 percentage points fall below the level of federal funds, that is currently set in a range between zero and 0.25%.
As regards inflation, Bernanke reiterated the recent rise in prices was mainly linked to transient factors such as higher energy and commodity prices and the trend should back down.
0 comments:
Post a Comment