Fed chairman hints at rate cut

11-01-2008

Fed chairman hints at rate cut
Federal Reserve head Ben Bernanke has hinted that action could be taken to boost the US economy sparking speculation of an interest rate cut.

In a speech at a private event in the United States, the chairman of the country's central bank denied that he was expecting a recession to take place, although he admitted that the economic outlook for the new year had worsened with more "pronounced" risks to growth.

Mr Bernanke said "additional policy easing" may be necessary and promised to act to guarantee stability in financial markets if intervention was required.

He added: "We stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks."

The Dow Jones Industrial Average closed 117 points higher after the announcement.

Previously, the Fed reduced interest rates by 0.5 per cent and held money market auctions to boost liquidity in the wake of the subprime crisis.

Uncertainty about the level of losses caused by loans to high-risk borrowers has led to banks stockpiling their reserves and avoiding lending to each other. The central bank's auctions were meant to reduce the cost of obtaining finance for institutions.

In spite of the Fed's previous moves, investment banks such as Goldman Sachs and Merrill Lynch have forecast a recession in the world's largest economy.

Yesterday, the Bank of England and European Central Bank decided to keep interest rates unchanged.

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