In a speech Thursday, Federal Reserve chairman Ben Bernanke says central bank ready to cut interest rates again in order to support lagging economy.
January 10 2008: 1:02 PM EST
NEW YORK (CNNMoney.com) -- Federal Reserve chairman Ben Bernanke said in a speech Thursday that the central bank is prepared to continue lowering interest rates in order to help keep the economy on track."We stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks," Bernanke said in prepared remarks before the Women in Housing and Finance and Exchequer Club in Washington, D.C.
Stocks, which had been trading lower before the speech, rebounded on the news as Wall Street interpreted Bernanke's comments to mean that there is now an increased likelihood the Fed will lower its key federal funds rate by a half of a percentage point, to 3.75 percent, at the conclusion of its two-day meeting on January 30.
To that end, investors are pricing in an 86 percent chance that the Fed will lower rates by a half-point on January 30, according to federal funds futures listed on the Chicago Board of Trade.
Bernanke's speech comes as more and more economists are saying that the economy is either already in a recession or on its way towards entering one. Bernanke stopped short of describing current conditions as a recession in his prepared remarks but he did paint a bleak picture for the economy in 2008.
"Downside risks to growth have become more pronounced. Notably, the demand for housing seems to have weakened further, in part reflecting the ongoing problems in mortgage markets," Bernanke said.
"In addition, a number of factors, including higher oil prices, lower equity prices, and softening home values, seem likely to weigh on consumer spending as we move into 2008," he added.
Bernanke also said that the central bank's new auction program, which it announced in December as a way to loan money to banks in need of cash at a rate below the Fed's discount rate, appears to be a success and could "become a useful permanent addition to the Fed's toolbox."
The Fed has already conducted two auctions for a combined $40 billion and will be loaning $60 billion more later this month through two additional auctions.
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