Bernanke: impact of lower interest rates likely to be limited
2/12/2008 16:07
US Federal Reserve Chairman Ben Bernanke warned yesterday that there are
limits to how much further interest rate cuts would revive an economy that is
likely to stay weak well into next year.
"Although further reductions ... are
certainly feasible, at this point the scope for using conventional interest rate
policies to support the economy is obviously limited," said Bernanke in a speech
to business leaders in Austin, Texas. A copy of the speech was made available on
the Fed website.
But there are other ways that the Fed might bolster economic
activity, the chief of the US central bank said.
For instance, the Fed could
buy longer-term Treasury or agency securities on the open market in substantial
quantities. This might lower rates on these securities, thus helping to spur
aggregate demand, he said.
To help overcome the financial crisis and bolster
the economic growth, the Fed has taken aggressive rate reductions since last
September. Its key interest rate now stands at 1 percent, a level seen only once
before in the last half-century.
Bernanke noted in the speech that the
bracing impact of the aggressive rate cuts has been somewhat stymied by the
worst credit and financial crises to hit the world economy since the
1930s.
Despite lower borrowing costs ordered by the Fed, banks have been
reluctant to lend money to people and businesses.
About the economic outlook,
Bernanke warned that the economy likely will remain stuck in a
slump.
"Despite the efforts of the Federal Reserve and other policymakers,
the US economy remains under considerable stress," he said.
He said that
"even if the functioning of financial markets continues to improve, economic
conditions will probably remain weak for a time."
Many economists predict
Bernanke and his colleagues will drop the rate again at their next meeting on
Dec. 15-16.
The Fed can lower its key rate to zero. But nominal interest
rates cannot fall below zero.
The US economy declined at an annual rate of
0.5 percent in the third quarter. Economists believe that it will continue to
fall in the final quarter of this year and early next year.
Xinhua
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