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The Federal Reserve will lower interest rates aggressively in the coming months to try to avert a US recession, the central bank's chairman, Ben Bernanke, indicated yesterday.
In a speech shorn of the usual caveats and ambiguities, Bernanke said that the Fed had been persuaded of the need to act by increasingly gloomy economic data.
"We stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks," he said.
Financial markets reacted enthusiastically to the word "substantive", which was interpreted as increasing the likelihood of a 50 basis point interest rate cut when the Fed meets next at the end of January. Futures markets began to price in rate cuts of more than a full percentage point over the next three months, and share prices rallied on the hope that a more activist Fed could ward off recession.
Bernanke's speech came in reaction to months of criticism that the Fed has been slow to react to the emerging economic threats posed by the mortgage market meltdown.
Although he cautioned against reading too much into any single piece of data, he said that the uptick in unemployment in December had been "disappointing".
- Independent
