US financial crisis taking toll on economy: Bernanke
Sunday, 24 August 2008
JACKSON HOLE, Wyoming, Aug 23 (AP): Federal Reserve Chairman Ben Bernanke said Friday the financial crisis that has pounded the country - coupled with higher inflation - is taking a toll on the economy and poses a major challenge to Fed policymakers as they try to restore stability.
"Although we have seen improved functioning in some markets, the financial storm that reached gale force" around this time last year "has not yet subsided, and its effects on the broader economy are becoming apparent in the form of softening economic activity and rising unemployment," Bernanke said in a speech to a high-profile economics conference here.
While Bernanke welcomed the recent drops in oil and other commodities' prices, and believes inflation will moderate this year and next, the Fed chief also warned the inflation outlook remains highly uncertain.
The Fed, he said, would monitor the situation closely and will "act as necessary" to make sure that inflation doesn't get out of hand.
The current financial and economic environment is one of the most challenging to Fed policymakers "in memory," he acknowledged.
Given those dueling economic cross-currents---weak economic growth and higher inflation - many economists believe the Fed will leave rates where they are at its next meeting on September 16, and probably through the rest of this year.
"They won't act until the coast is clear on financial stability and the state of the economy," said Allen Sinai, chief global economist at Decision Economics Inc. Many fear the economy will hit a rough patch later this year as the bracing effect of the government's tax-rebate checks fades.
Wall Street was buoyed by Bernanke's remarks, a dip in oil prices and growing speculation that Lehman Brothers Holdings Inc could be sold. In afternoon trading, the Dow rose 135.49 to 11,565.70, the Standard & Poor's 500 index added 7.45 to 1,285.17, and the Nasdaq composite index rose 19.41 to 2,399.79.
"Although we have seen improved functioning in some markets, the financial storm that reached gale force" around this time last year "has not yet subsided, and its effects on the broader economy are becoming apparent in the form of softening economic activity and rising unemployment," Bernanke said in a speech to a high-profile economics conference here.
While Bernanke welcomed the recent drops in oil and other commodities' prices, and believes inflation will moderate this year and next, the Fed chief also warned the inflation outlook remains highly uncertain.
The Fed, he said, would monitor the situation closely and will "act as necessary" to make sure that inflation doesn't get out of hand.
The current financial and economic environment is one of the most challenging to Fed policymakers "in memory," he acknowledged.
Given those dueling economic cross-currents---weak economic growth and higher inflation - many economists believe the Fed will leave rates where they are at its next meeting on September 16, and probably through the rest of this year.
"They won't act until the coast is clear on financial stability and the state of the economy," said Allen Sinai, chief global economist at Decision Economics Inc. Many fear the economy will hit a rough patch later this year as the bracing effect of the government's tax-rebate checks fades.
Wall Street was buoyed by Bernanke's remarks, a dip in oil prices and growing speculation that Lehman Brothers Holdings Inc could be sold. In afternoon trading, the Dow rose 135.49 to 11,565.70, the Standard & Poor's 500 index added 7.45 to 1,285.17, and the Nasdaq composite index rose 19.41 to 2,399.79.