Fed Chief Warns of Economic Slowdown
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WASHINGTON — The chairman of the Fed, Ben Bernanke, said today that a host of economic problems, including the severe housing slump, will cause business growth to slow noticeably in coming months.
Mr. Bernanke told Congress’s Joint Economic Committee that the central bank is watching developments closely, but gave no signal that it’s prepared at the current time to cut interest rates even further.
He stressed that the central bank was keeping all options open, saying the Fed would be closely watching economic growth and the threat of inflation.
RELATED: See text of Bernanke’s remarks
If the economy slows to a crawl, the Fed cuts rates to boost activity while if inflation becomes a threat, it raises interest rates to dampen price pressures.
Going forward, Mr. Bernanke said the Fed would not be “dogmatic” in what it might do.
“We will try to make judgments over time as we get more information,” Mr. Bernanke said, adding at another point that there were a “lot of uncertainties” at present.
A day after a huge selloff, stocks fluctuated today with the Dow Jones industrial average swinging between positive and negative territory.
Fed policymakers last week cut a key interest rate for the second time in two months, but disappointed Wall Street by discouraging expectations that it would follow with further rate cuts.
Mr. Bernanke said he and his colleagues believe economic activity will “slow noticeably in the fourth quarter” compared to the 3.9% pace of the third quarter.
“Growth was seen as remaining sluggish during the first part of next year, then strengthening as the effects of tighter credit and the housing correction begin to wane,” Mr. Bernanke told the JEC.
Many economists believe the economy’s maximum point of danger of falling into a recession will occur in the early part of next year.
A variety of problems from the steepest housing downturn in more than two decades to a severe credit crunch, surging oil prices, and a falling dollar have roiled Wall Street in recent days, triggering big plunges in stock prices.
The Dow Jones industrial average plunged by 360.92 points yesterday, the second drop of that magnitude in the past week.
