|
|
|
|
|
Bernanke clears way for Fed rate cut Krishna Guha and Daniel Pimlott Ben Bernanke put the Federal Reserve on a path towards a December rate cut in a speech on Thursday night in which he said the relapse in financial markets had resulted in a “tightening in financial conditions” that had the potential to harm the real economy. The Fed chairman also said recent data on household spending had been “on the soft side” and warned that the combination of higher petrol prices, the weak housing market, tighter credit conditions and declines in stock prices seem likely to create some headwinds for the consumer in the months ahead. Mr Bernanke’s comments complete the repositioning of the US central bank begun a day earlier by his deputy, Don Kohn. Prior to that, hawkish comments by less-senior Fed officials had fuelled tension with the bond market, which was pricing in more rate cuts.
Mr Bernanke said the Fed remains concerned about the risk to inflation from rising food, energy and import prices. In an apparent warning to investors that a Fed rate cut on December 11 is not guaranteed, he said there was a lot of information still to come, including an important labour market report. But the thrust of his speech was that the Fed would cut rates providing three conditions are met: financial markets remain distressed, the risks to inflation do not increase and the remaining economic data do not come in stronger than expected. His comments came as new revised figures showed the US economy grew at its fastest rate in four years in the third quarter. An export surge fuelled by a weaker dollar and global growth more than offset the impact of the deepening slump in housing. Gross domestic product grew at 4.9 per cent in the quarter, almost twice the Federal Reserve’s estimate of the maximum sustainable rate for the US economy.
|
||||
