Bernanke pledges help for weak recovery

 
City A.M. Reporter
The Federal Reserve is prepared to take further steps to help an economic recovery that is "close to faltering", Fed Chairman Ben Bernanke has said.

Citing anaemic employment, depressed confidence and financial risks from Europe, Bernanke urged lawmakers not to cut spending too quickly in the short term even as they grapple with trimming the long-run budget deficit.

He also made clear that the US central bank stands ready to ease monetary conditions further following its launch of a new stimulus measure in September.

"The (Fed's policy-setting Open Market) Committee will continue to closely monitor economic developments and is prepared to take further action as appropriate to promote a stronger economic recovery in the context of price stability," Bernanke told the Joint Economic Committee of Congress.

His language was the firmest indication yet that the Fed may take further steps to prevent a weakening US economy from stumbling back into recession. Financial analysts over the past week increasingly have warned that economic contraction is a considerable and mounting risk.

The prospect of further Fed support for the economy provided support to US stocks, which pared earlier losses sustained on the darkening outlook in Europe amid fears of a Greek default.

Bernanke said government belt-tightening was likely to prove a significant drag on the world's largest economy, which averaged less than one per cent annualised growth in the first half of the year.

"An important objective is to avoid fiscal actions that could impede the ongoing economic recovery," he said.

Bernanke said Europe's debt crisis poses 'ongoing risks' to US economic growth, saying they had already dampened the mood of households and businesses.

Stressing that higher inflation earlier in the year had not become ingrained in the economy, Bernanke argued price pressures will remain subdued for the foreseeable future.

That backdrop made it easier for the Fed to launch a fresh monetary easing effort in September, when it announced it would be selling $400bn in short-term Treasuries and use the proceeds to buy longer-dated ones.