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Economic weakness to continue, says FED chief

Daily newsbrief journal for December 2008, also see http://www.usdemocrats.com/brief for a global 100-page perpetual brief and follow twitter @usdemocrats


Economic weakness to continue, says FED chief

Postby admin » Thu Feb 09, 2012 10:19 am

Economic weakness to continue, says FED chief
« Thread Started on Dec 1, 2008, 1:35pm »

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Economic weakness to continue, says FED chief
Posted: 02:08 PM ET
By David Goldman
CNNMoney.com
NEW YORK (CNNMoney.com) — Federal Reserve Chairman Ben Bernanke said
Monday that the nation’s economic weakness will continue for some time, even if
the government’s efforts to boost lending help restore the credit markets to
normal.

“The likely duration of the financial turmoil is difficult to judge, and
thus the uncertainty surrounding the economic outlook is unusually large,” said
Bernanke.

Bernanke, addressing business leaders in Austin, Texas, said the Fed will
continue to use the tools it has been given to fight the financial crisis. He
hinted at further aggressive actions like the ones taken recently to prop up
the short-term commercial paper market or buy $600 billion in securities and
debt held by Fannie Mae and Freddie Mac.

In fact, Bernanke said that cutting rates may not be the Fed’s most
effective method for tackling the financial crisis.

“Although conventional interest rate policy is constrained … the second
arrow in the Federal Reserve’s quiver — the provision of liquidity — remains
effective,” he said.

The Fed cut its key funds rate to an all-time low of 1 percent in October
in response to deterioration in the global financial system, and many
economists expect the Fed to cut interest rates again when it meets Dec. 15-16.

Though the cuts tend to be inflationary, economists say falling prices
have given the Federal Reserve more wiggle room for lowering interest rates.
Core inflation is now at its lowest point since October 2007, according to a
recent Department of Labor report.

But since the economy officially entered a recession a year ago, Bernanke
has expanded the Fed’s role beyond its traditional capacity of balancing
inflation and unemployment by cutting and raising lending rates. Since last
December, the Fed has lent out trillions of dollars to banks, businesses,
mutual funds and foreign central banks in an effort to boost liquidity in the
financial markets and keep the economy from collapsing.
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