Federal Reserve Chairman Ben Bernanke pledged Friday that the central bank will “act as needed” to keep the credit fallout that has unhinged Wall Street from hurting the national economy.
In anxiously awaited remarks, Bernanke didn’t specify what the Fed’s next move will be but made clear policymakers are keeping close tabs on the problem, which has roiled markets in the United States and around the globe.
“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 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.”
Many believe the odds are growing that the Fed will cut its most important interest rate, now at 5.25 percent, by at least one-quarter percentage point on or before Sept. 18, its next regularly scheduled meeting. The Fed hasn’t lowered this rate in four years.
The Fed “will act as needed to limit the adverse effects on the broader economy that may arise from the disruptions in financial markets,” Bernanke told an economics conference here.
To guide the Fed in terms of what its next move will be, Bernanke said policymakers will pay especially close attention to the “timeliest indicators” as well as information gleaned from businesses and banks around the country. Economic data that was taken before the credit markets really seized up in August will be much less useful to policymakers to assess the country’s economic health, he explained.
It was his first speech — and his most extensive comments — since the credit crunch took a turn for the worst in August. The carnage in credit markets and the turmoil on Wall Street pose the biggest test of Bernanke’s skills since taking the Fed helm 19 months ago.
President Bush was announcing steps Friday to aide homeowners who are having trouble making the payments on risky mortgages.