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WASHINGTON: US Federal Reserve chairman Ben Bernanke on Thursday
predicted “a period of sluggish growth” followed by improvement
on interest rate cuts and a stimulus plan, while keeping the door
open to further cuts.
Speaking to a US Senate panel, Bernanke
reiterated that the central bank is “carefully evaluating” the
economic situation and remains ready to act “in a timely manner”
to guard against a downturn — a hint at more potential rate cuts.
The remarks offered little new on the economic
or monetary policy outlook but were the first by Bernanke since
Congress approved and President George W. Bush signed a $168-billion
economic stimulus plan.
Bernanke told the Senate Banking Committee that
the stimulus plan, which aims to boost consumer and business
spending, would help lift economic growth later this year.
“At present, my baseline outlook
involves a period of sluggish growth, followed by a somewhat
stronger pace of growth starting later this year as the effects of
monetary and fiscal stimulus begin to be felt,” Bernanke said,
according to a copy of his prepared remarks.
The Fed chief, by repeating comments made
in the Federal Open Market Committee statement last month, appeared
to be indicating the central bank is open to further cuts in rates
if needed to stave off a downward economic spiral.
In response to a question, Bernanke said
the Fed would release its new economic outlook later this month
which “will show lower projections of growth, and they’ll be
reasonably consistent with what we’re seeing with private
forecasters.”
Brian Bethune, economist at Global
Insight, said, “what comes out loud and clear is that the Fed has
become increasingly concerned about mounting stresses in the
financial system ... combined with increased downside risks to
growth.”
The comments suggest the Fed “will
reduce interest rates by a further 50 basis points on March 18, and
another 50 basis points on April 30” to take the federal funds
rate down to 2.00 percent.
Robert Brusca at FAO Economics said the
Fed is walking a fine line in stimulating the economy without
sparking inflation.
At the first sign of an upturn, Brusca
said, “the Fed will have to stop being aggressive in cutting rates
and will have to begin to ponder reversing course. For now the Fed
has flexibility. But for how much longer will this last?”
The Fed has made a series of dramatic cuts
in interest rates since September to bring the federal funds rate to
3.0 percent from 5.25 percent amid unusual financial market turmoil.
The actions included an emergency three-quarter-point cut on January
22 and another half-point reduction a week later.
Bernanke essentially repeated the comments
from the January 31 meeting and stated: “The FOMC will be
carefully evaluating the incoming information bearing on the
economic outlook and will act in a timely manner as needed to
support growth and to provide adequate insurance against downside
risks.”
On inflation, Bernanke repeated the view
that price pressure “should moderate from its recent rates, and
the public’s longer-term inflation expectations should remain
reasonably well-anchored.”
The latest figures showed a sharp slowdown
in the US economy in the fourth quarter with a tepid expansion of
just 0.6 percent on an annual basis, with the impact of the worst
housing slump in decades hitting the banking sector and consumers.
Bernanke said the Fed’s task is
complicated by the fact that its monetary policy impact has a lag.
-- AFP
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