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Fearing US ‘double-dip’ recession Fed commits making credit easier

Friday, July 23rd 2010 - 03:36 UTC
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Ben Bernanke before the Lower House Financial Services Committee Ben Bernanke before the Lower House Financial Services Committee

The United States Federal Reserve will try to push borrowing costs even lower if the job market continues to languish, Fed Chairman Ben Bernanke said, offering his clearest blueprint yet for possible additional monetary easing.

After three quarters of solid growth, the US economy has been losing steam, with firms still reluctant to hire and the housing sector seemingly unable to exit a prolonged rut.

Bernanke's comments accompanied Labour Department data released showing new claims for state unemployment benefits spiked to 464,000 last week.

With fears of a “double-dip” recession mounting in recent weeks, Bernanke reassured lawmakers the Fed is prepared to take further steps if the situation worsens appreciably.

“We are ready and will act if the economy does not continue to improve, if we don't see the kind of improvements in the labour market that we are hoping for and expecting,” Bernanke told the House of Representatives Financial Services Committee.

As he did before a Senate panel on Wednesday, Bernanke indicated the Fed does not expect the economy to stall, and therefore does not foresee any extra policy measures being needed.

Another top Fed official, New York Fed President William Dudley, said that the US economic recovery was proving “a bit bumpy” with growth that is “far less robust” than the US central bank would like. However, he added that a renewed recession was not likely.

Even with interest rates effectively at zero, Bernanke argued there is more the central bank can do if needed to spur growth.

It could lower the rate it pays banks to park excess reserves at the Fed, bolster its stated commitment to keep official rates low for an “extended period,” or purchase yet more mortgage or Treasury bonds.

In addition to slashing interest rates to rock-bottom levels, the Fed bought more than 1.5 trillion US dollars in such securities in an effort to combat the deepest recession since the Great Depression.

Categories: Economy, United States.

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