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Bernanke Prepared to `Act' to Stem Credit-Rout Impact

By Craig Torres and Scott Lanman

Aug. 31 (Bloomberg) -- The Federal Reserve will do what's needed to prevent this month's credit market rout from undoing the six-year economic expansion, Chairman Ben S. Bernanke said.

The Fed ``continues to monitor the situation and will act as needed to limit the adverse effects on the broader economy that may arise from the disruptions in financial markets,'' he said at the Kansas City Fed's annual symposium in Jackson Hole, Wyoming. ``Further tightening of credit conditions, if sustained, would increase the risk that the current weakness in housing could be deeper or more prolonged than previously expected.''

Bernanke's remarks are his first since losses in the subprime mortgage market that pushed up the cost of credit for consumers and companies. The Fed was forced two weeks ago to cut the interest rate on direct loans to banks and shift its policy focus to growth, rather than inflation. The Fed chief suggested the Fed is prepared to cut the discount rate further or use additional tools to ease market strains.

``The Federal Reserve stands ready to take additional actions as needed to provide liquidity and promote the orderly functioning of markets,'' Bernanke said.

Today's speech suggests officials are considering all options between now and the Sept. 18 policy meeting, and are likely to lean against the risks of a slowdown in growth even though current economic data are relatively strong. Bernanke also made clear the central bank won't rescue investors from bad decisions.

`On the Ball'

``It is clear now the Fed is on the ball; they understand what is happening in markets,'' said Christopher Low, chief economist at FTN Financial New York. ``It does suggest that they are willing to cut rates in September.''

Stocks pared gains after Bernanke's remarks while Treasury securities remained lower. The Standard & Poor's 500 index rose 0.9 percent to 1,471.07 at 10:52 a.m. in New York, after advancing as much as 1.3 percent earlier. The yield on the benchmark 10-year note was at 4.55 percent.

``It is not the responsibility of the Federal Reserve --nor would it be appropriate -- to protect lenders and investors from the consequences of their financial decisions,'' Bernanke said. ``But the developments in financial markets can have broad economic effects felt by many outside the markets, and the Federal Reserve must take those effects into account when determining policy.''

Bush Plan

Bernanke spoke as President George W. Bush prepared to unveil measures his administration plans to alleviate the crisis among homeowners unable to pay their loans. Bush will let the Federal Housing Administration, which insures mortgages for low- and middle-income borrowers, guarantee loans for delinquent borrowers, an administration official said before the president's speech.

Delinquencies in adjustable-rate subprime mortgages originated in late 2005 and 2006 ``are likely to rise further,'' Bernanke said. The Fed's mountainside gathering is attended this year by central-bank officials from some 30 countries and almost all of the Fed's policy-setting Open Market Committee.

The speech comes amid the most tumultuous period of Bernanke's 19-month tenure, after a sudden increase in corporate borrowing costs resulting from the contamination of asset-backed securities linked to subprime mortgages, which are home loans to borrowers with low credit scores or limited credit histories.

Avoiding Risk

``Investor uncertainty has increased significantly, as the difficulty of evaluating the risks of structured products that can be opaque or have complex payoffs has become more evident,'' Bernanke said. ``Investors may have become less willing to assume risk.''

On Aug. 7, the Federal Open Market Committee voted to leave the main interest rate at 5.25 percent for the ninth straight time and reiterated that inflation was its main concern, though risks to economic growth had increased ``somewhat.''

Two days later, BNP Paribas SA, France's biggest bank, was forced to halt withdrawals from three of its investment funds, and money market rates rose worldwide, leading central banks to pump cash into the banking system. The Fed followed actions by the European Central Bank with its biggest cash infusion since the aftermath of the Sept. 11, 2001, attacks.

The moves weren't enough to stem the crisis of confidence in credit markets. On Aug. 17, after an emergency videoconference, the Fed cut the cost of direct loans to banks and revised its economic outlook, opening the door to lowering the benchmark federal funds rate, which covers overnight loans between banks.

Yields Drop

Still, since then, financing has remained costly or constrained for riskier securities and loans. Investors have fled to Treasuries, pushing yields on two-year notes to more than 1 percentage point below the Fed's 5.25 percent benchmark rate, a sign buyers anticipate a series of rate cuts.

The collapse of the U.S. housing-market boom in the first half of the decade is taking its toll on the broader economy. Residential construction has subtracted from economic growth for six straight quarters, the longest streak since 1982, and lopped 0.6 percentage point off the expansion in the three months through June.

Gross domestic product rose at a 4 percent annual rate in the second quarter, the Commerce Department said yesterday, up from an initial estimate of 3.4 percent.

In the FOMC's Aug. 17 statement, the panel omitted references to inflation and said risks of slower growth had increased ``appreciably.''

``The committee is monitoring the situation and is prepared to act as needed to mitigate the adverse effects on the economy arising from the disruptions in financial markets,'' the Fed said Aug. 17.

Special_one Escreveu:Independentemente do que vai dizer isto fecha em minimos por isso o melhor é ir para praia e nem ligar ao que esse senhor diz como sempre falam falam e não dizem nada

Ben Bernanke Escreveu: Well-functioning financial markets are essential for a prosperous economy. As the nation's central bank, the Federal Reserve seeks to promote general financial stability and to help to ensure that financial markets function in an orderly manner. In response to the developments in the financial markets in the period following the FOMC meeting, the Federal Reserve provided reserves to address unusual strains in money markets. On August 17, the Federal Reserve Board announced a cut in the discount rate of 50 basis points and adjustments in the Reserve Banks' usual discount window practices to facilitate the provision of term financing for as long as thirty days, renewable by the borrower. The Federal Reserve also took a number of supplemental actions, such as cutting the fee charged for lending Treasury securities. The purpose of the discount window actions was to assure depositories of the ready availability of a backstop source of liquidity. Even if banks find that borrowing from the discount window is not immediately necessary, the knowledge that liquidity is available should help alleviate concerns about funding that might otherwise constrain depositories from extending credit or making markets. The Federal Reserve stands ready to take additional actions as needed to provide liquidity and promote the orderly functioning of markets.

It is not the responsibility of the Federal Reserve--nor would it be appropriate--to protect lenders and investors from the consequences of their financial decisions. But developments in financial markets can have broad economic effects felt by many outside the markets, and the Federal Reserve must take those effects into account when determining policy. In a statement issued simultaneously with the discount window announcement, the FOMC indicated that the deterioration in financial market conditions and the tightening of credit since its August 7 meeting had appreciably increased the downside risks to growth. In particular, the further tightening of credit conditions, if sustained, would increase the risk that the current weakness in housing could be deeper or more prolonged than previously expected, with possible adverse effects on consumer spending and the economy more generally.

ThE_KiLLeR Escreveu:Qual é a melhor forma de "ouvirmos" o discurso na net?
e a mais rápida tambem..
obrigado

Auditor Escreveu:é as 15h em portugal ?