The Federal Reserve is set to act as needed to limit impacts of financial turmoil on the economy but will not bail out investors who made poor decisions, Fed Chairman Ben Bernanke said on Friday.
The committee continues to monitor the situation and will act as needed to limit the adverse effects on the broader economy that may arise from the disruptions in financial markets, Bernanke said in a speech to a symposium organized by the Kansas City Federal Reserve.
But the central bank is not ready to shield investors whose actions have resulted in financial losses, he said.
It is not the responsibility of the Federal Reserve -- nor would it be appropriate -- to protect lenders and investors from the consequences of their financial decisions, he said.
He also acknowledged that disruptions in markets stemming from a slumping housing market and a sharp rise in delinquencies among subprime loans could have damaging effects on the broader economy. Those distortions would have an impact on the Fed's thinking going forward, he said.
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Developments in financial markets can have broad economic effects felt by many outside the markets, and the Federal Reserve must take those effects into account when determining policy, he said.
Bernanke's comments come as financial markets reel from the effects of declining home prices and revelations of broad exposure to subprime loans. Losses in mortgage markets led to a tightening of credit and tumbling U.S. stock markets in recent weeks.