Federal Reserve Chairman Ben Bernanke pledged Thursday to cut interest rates this month in a bid to prevent housing and credit problems from plunging the nation's economy into a recession.
We stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks, Bernanke said in Washington, confirming the Fed is ready to act aggressively in order to bolster the economy.
The Fed chief said the downturn in the credit and housing markets posed a considerable risk to the overall economic health and predicted that consumer growth and spending would slow this year. After Bernanke's comments, U.S. stocks surged while the dollar remained lower against major currencies.
Investors concluded the Fed would aggressively lower interest rates at its end-of-month policy-setting meeting. The Fed's policy-setting Federal Open Market Committee will hold a two-day meeting January 29-30.
The Fed lowered its key rates three times in 2007 in an attempt to bolster the economy. It's recent cut on December 11, left the rate at 4.25 percent, a two-year low. Still, Bernanke has come under criticism for not acting more aggressively to deal with the economy's problems.
Incoming information has suggested that the baseline outlook for real activity in 2008 has worsened and the downside risks to growth have become more pronounced, Bernanke remarked.
While discussing Friday's employment report which reported only 18,000 jobs was created in December, Bernanke noted this as a warning sign of mounting economic risks.
Should the labor market deteriorate, the risks to consumer spending would rise, he said.
In response to the credit problems, the Fed recently created a new auction facility for financial institutions to go to for short-term loans. In December, the Fed provided $40 billion worth of loans to banks and will provide another $60 billion in two auctions later this month.