US Federal Reserve Chairman Ben Bernanke yesterday pledged that the central bank would "act as needed" to keep the credit crisis that has unhinged Wall Street from hurting the US economy.
In anxiously awaited remarks, Bernanke did not specify what the Fed's next move will be, but made clear policymakers are keeping close tabs on the problem, which has roiled investors in the US and around the globe.
Even as Bernanke vowed Fed action, he sought to temper investors' expectations.
"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," Bernanke said. "But 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."
It was his first speech -- and his most extensive comments -- since the credit crunch took a turn for the worst last month. The carnage in credit markets and the turmoil on Wall Street pose the biggest test of Bernanke's skills since taking the Fed helm 19 months ago.
The Fed's most important interest rate, called the federal funds rate, has been at 5.25 percent for more than a year. Any reduction to this rate would mean lower interest rates for millions of people and businesses. That's why it is the Fed's main tool for influencing economic activity.
In his remarks in Jackson, Wyoming, to a high-profile conference on housing sponsored by the Federal Reserve Bank of Kansas City, Bernanke discussed some of the steps the Fed has taken so far to deal with the credit crunch.
While problems were triggered largely by heightened concerns about higher-risk "subprime" mortgages made to people with blemished credit histories or low incomes, Bernanke said "global financial losses have far exceeded even the most pessimistic projections of credit losses on those loans."
US President George W. Bush was announcing steps yesterday to aid homeowners who are having trouble making the payments on risky mortgages.
Bush was to talk about several initiatives and reforms to help homeowners with risky mortgages keep their homes, a senior administration official said on Thursday. Bush also was to discuss efforts to prevent these kinds of problems from arising in the future.
The official said Bush would direct US Treasury Secretary Henry Paulson and Housing Secretary Alphonso Jackson to work on an initiative to help troubled mortgage holders get services and products they need to keep them from defaulting on their loans.
The official spoke on condition of anonymity to discuss details of the initiatives before the presidential event.
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