Bernanke hints at further US stimulus
Ben Bernanke, the chairman of the US Federal Reserve, has said more easing of monetary policy is on the cards if US economic growth continues to falter.
Bernanke hinted that further rounds of quantitative easing may be possible to inject new momentum into the economy.
The Fed completed a $600bn (£377bn) round of bond-buying representing the last round of stimulus last month.
Speaking at the US House of Representatives Financial Services Committee, Bernanke stuck to the view that current economic challenges, including stalled labour and housing markets, were a soft patch within a broader recover.
But he seemed more willing to consider the prospect of further easing, a contrast to previous statements that further bond-buying was not necessary.
He also warned that if the US fails to raise the debt ceiling by August 2, it will pay creditors first and stop benefits such as Social Security payments.
His comments offered the first public indication of how the Obama administration will prioritize its financial obligations after August 2, when the US Treasury says the government would run out of money to pay all of its bills.
“The assumption is that as long as possible, the Treasury would want to try to make payments on the principal and interest to the government debt, because failure to do that would certainly throw the financial system into enormous disarray and have major impacts on the global economy,” Bernanke said.
His comments will reassure many investors, but threatening Social Security is dangerous politics ahead of the 2012 elections.
Though the expectation is for Washington to prioritise its debts, the Obama administration has so far refused to talk about planning for a possible default because it wants to avoid giving Republicans a reason to see August 2 as a soft deadline.
Leaders meeting for a fourth straight day today in an effort to reach a deficit reduction deal that would clear the way for Congress to increase the $14.3 trillion (£9 trillion) debt ceiling.