US Central Bank Chief: Fed Will Cut Interest Rates As Needed

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10 January 2008

The head of the U.S. central bank, Ben Bernanke, said Thursday that the Federal Reserve will cut interest rates if the economy weakens further.  VOA's Barry Wood reports. 

Bernanke said the housing market is continuing to weaken as problems persist with mortgage lending. Speaking to a business audience in Washington, Bernanke signaled further cuts in short-term interest rates.

"We stand ready to take substantive additional action as needed to support growth and provide adequate insurance against downside risks," he said.

Financial markets are now expecting a 0.5 percent reduction in the short-term fed funds rate when the Federal Reserve policy-making committee concludes a two-day meeting on January 30. In an effort to boost economic activity, the Federal Reserve has cut interest rates three times by a cumulative one percent since a housing-related credit crisis rattled global markets in August.

While acknowledging that there has been a significant slowdown, Bernanke says he does not foresee a decline.

"The Federal Reserve is not now currently forecasting a recession," he added.  "We are forecasting slow growth. And as I mentioned today, there are downside risks."

Some forecasters believe that falling house prices and higher gasoline prices have triggered a slowdown in consumer spending and that the economy may already be in recession.