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Thu, Aug 23, 2007 - Page 10 News List

Bernanke has tools to deal with market woes, senator says

AFP , WASHINGTON

A US senator said on Tuesday that Federal Reserve Chairman Ben Bernanke pledged to use "all tools available" to avert a worsening of the housing and credit problems roiling financial markets.

Democratic Senator Christopher Dodd made the comments after meeting Bernanke and US Treasury Secretary Henry Paulson on Capitol Hill, where they discussed the market turmoil.

Dodd, the chairman of the powerful Senate Banking and Housing Committee, told reporters after the meeting that Bernanke and Paulson had both assured him they were ready to act to keep markets functioning. Bernanke and Paulson left the meeting without commenting to reporters.

Asked if he urged Bernanke to cut the federal funds rate, the central bank's key short-term interest rate, Dodd replied: "No, I did not specifically ask him."

The senator said Bernanke, a former academic, did not make any specific pledges to him regarding a potential cut in the Fed funds rate which would lower borrowing costs for millions of consumers.

The Fed funds rate has been anchored at 5.25 percent since June last year, but economists say the central bank is coming under increasing pressure to cut the rate. Its next policy meeting is scheduled for Sept. 18.

Rising home foreclosures have sparked a sharp drop in demand for mortgage-backed securities on Wall Street. The housing downturn has also triggered multibillion-dollar losses for investors and led some big banks to tighten lending standards.

The credit jitters have played havoc with the stock markets, spurring volatile price swings and heavy losses in some stocks, particularly mortgage and financial firms.

The Fed chairman met Paulson, a former chief executive of investment banking giant Goldman Sachs, and Dodd as a report revealed more woes for overstretched homeowners.

A monthly survey by RealtyTrac, a private firm that monitors foreclosure activity, showed foreclosure filings running at over 1.1 million in the January-July period, marking a jump of 60 percent from the same period of last year.

Dodd, who is also a presidential contender, said he was pleased Paulson had stressed the administration of US President George W. Bush is assessing ways for people threatened with foreclosure to keep their homes.

"We're at a 37-year high of the rate of foreclosures in this country. We may have as many as 1 million and [up to] 3 million people who could lose their homes ... because they got bad deals on mortgages," Dodd said.

The lawmaker said he was pleased the Fed had slashed the interest rate it levies on loans to commercial banks on Friday to boost credit flows and stop the banking system from clogging up.

The central bank slashed its discount rate by half-a-percentage point to 5.75 percent.

"The Fed understands it," Dodd said of the housing and credit woes buffeting the world's largest economy.

"Chairman Bernanke ... intends to utilize all the tools available to him to act," Dodd said.

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