[NYTr] Bernanke hints at further rate cuts

[All the News That Doesn't Fit]

AP via Yahoo - Nov 29, 2007
http://news.yahoo.com/s/ap/20071130/ap_on_bi_ge/bernanke


Bernanke hints at further rate cuts

By Jeannine Aversa

WASHINGTON -- Federal Reserve Chairman Ben Bernanke on Thursday
hinted that another interest rate cut may be needed to bolster the
economy. The worsening credit crunch, a deepening housing slump,
and rising energy prices probably will create some "headwinds for
the consumer in the months ahead," he said.

Bernanke said he expects consumer spending will continue to grow
and suggested that the country can withstand the current problems
without falling into a recession. But he indicated that consumers
could turn more cautious as they try to cope with all the stresses.

The odds have grown that the country could enter a recession. A
sharp cutback in consumer spending could send the economy into a
tailspin. Against this backdrop, Fed policymakers will need to be
"exceptionally alert and flexible," Bernanke said.

That comment probably will be viewed as a sign the Fed may lower
interest rates when it meets on Dec. 11, its last session of the
year.

Twice this year the central bank has trimmed rates to keep the
housing collapse and credit crunch from throwing the economy into
a recession. Those cuts came in September and late October.

In the October meeting, Bernanke and his Fed colleagues signaled
that further cuts might not be needed. Since then, however, financial
markets have endured more turmoil. The housing slump has deepened,
consumer confidence has plummeted and consumer spending "has been
on the soft side," Bernanke said in a speech Thursday night to
business people in Charlotte, N.C.

A copy of his remarks was made available in Washington.

The economic outlook has been "importantly affected over the past
month by renewed turbulence in financial markets, which has partially
reversed the improvement that occurred in September and October,"
Bernanke said. "These developments have resulted in a further
tightening in financial conditions, which has the potential to
impose additional restraint on activity in housing markets and in
other credit-sensitive sectors," he said.

Bernanke spoke hours after the White House lowered its economic
growth projection for 2008 due to the deteriorating housing market.
The White House also raised its estimate for unemployment next year,
but said inflation should moderate.

The Commerce Department reported that the economy grew at a 4.9
percent rate from July through September, the fastest pace in four
years. The impressive performance, though, was not expected to carry
into the final three months of the year, when analysts expect growth
of 1.5 percent or less.

In his remarks, Bernanke said rising gasoline and heating oil prices
as well as higher food costs have the potential to raise inflation.
He said that is something the Fed also is watching.

At the October meeting, the Fed said the risk of higher inflation
was roughly in balance with the risk of slower economic growth.
Bernanke said Thursday that Fed policymakers "will have to judge
whether the outlook for the economy or the balance of risks has
shifted materially."

Just a day before Bernanke's speech, the Fed's No. 2 official
suggested the central bank may be inclined to slice rates again
because of Wall Street's turbulence and the worsening problems in
housing and in credit markets. Donald Kohn's remarks sent the market
soaring, with the Dow Jones industrial average gaining more than
300 points combined on Tuesday and Wednesday. That was the biggest
two-day point gain in five years.

Bernanke echoed some of the same concerns. Kohn had said policymakers
must remain "nimble" and he spoke of the need for "flexible and
pragmatic policymaking."

Bernanke, like Kohn, is keenly interested in how all the economic
stresses will affect consumers.

"I expect household income and spending to continue to grow, but
the combination of higher gas 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,"
Bernanke said in his speech.

Bernanke is facing his biggest challenge since taking over at the
Fed in February 2006. Some analysts have questioned whether he
waited too long to cut key interest rates and whether he has acted
aggressively enough in reacting to the nation's economic problems.