MW: Fed ready to act if stresses mount: Bernanke says
By Greg Robb, MarketWatch
WASHINGTON (MarketWatch) — The Federal Reserve stands ready to act to protect the financial system and the economy in the event that financial stresses from the European crisis escalate, Fed Chairman Ben Bernanke said Thursday.
“The situation in Europe poses significant risks to the U.S. financial system and economy and must be monitored closely,” Bernanke said in testimony prepared for delivery to the Joint Economic Committee of Congress.
He called on European leaders to do much more to stem the crisis.
Action is needed to stabilize euro-area banks, calm market fears about sovereign finances, set in place a workable fiscal framework and lay the foundation for long-term growth, he said.
Bernanke’s testimony was largely in line with expectations. Fed watchers did not expect the Fed chairman to show his hands about what the Fed might do at its next policy meeting on June 19 and 20.
Stocks DJIA +0.66% eased off robust gains after the testimony was released.
Financial market stress due to Europe and concerns about the loss of momentum in the U.S. economy have raised expectations that the Fed would do more to stimulate the economy.
On Wednesday, several key Fed officials said they were open to more easing if warranted.
In his discussion of the domestic economy, Bernanke stuck to his April forecast that growth will continue at a moderate pace.
He said the recovery had been bolstered by consumer spending, as consumers had more money to spend given the drop in gasoline prices.
Business caution continued to restrain the economy, he noted.
Bernanke suggested some of the apparent slowing in economic data, including last Friday’s weak jobs number, might be due to unusually warm weather this past winter, which may have brought forward some activity.
There have been a few encouraging signs in the housing market, he noted.
The Fed’s ultra-low interest rate policy is justified given high unemployment, subdued inflation and “the presence of significant downside risks,” he said.
Greg Robb is a senior reporter for MarketWatch in Washington.
