Bernanke makes markets reel

09:36, July 23, 2010      

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US Federal Reserve Chairman Ben Bernanke testifies before the Senate Banking, Housing and Urban Affairs Committee during a hearing on the Federal Reserve's semiannual monetary policy report to the Congress on Capitol Hill in Washington D.C., capital of the United States, July 21, 2010. Photo: Xinhua

A downbeat assessment from the US Fed chief depressed Asian stock markets Thursday.

Tokyo closed down 0.62 percent in its fifth straight day of losses, with a stronger yen also dampening the export sector. Sydney closed down 0.86 percent.

US stocks also sank Wednesday after US Federal Reserve president Ben Bernanke acknowledged the labor market's continued weakness while offering few specific options to stimulate lending and investment.

But Hong Kong and Shanghai both regrouped Thursday, with Hong Kong up 0.50 percent and Shanghai surging 1.07 percent, amid hopes that China would ease off on measures to cool its economy.

Bernanke warned the outlook for the world's largest economy was "unusually uncertain" Wednesday, saying that the central bank could step in if the economic recovery fails.

Bernanke told US lawmakers the US would see "moderate growth, a gradual decline in the unemploy-ment rate and subdued inflation over the next several years," compounding fears of a painful exit from recession.

Underlining the severity of the crisis, Bernanke warned that private sector hiring was still growing at "a pace insufficient to reduce the employment rate materially."

Bernanke said the Fed was "prepared to take further policy actions as needed," but stopped well short of saying action was imminent.

"If the recovery seems to be faltering, then we will at least need to review our options," he added.

Bernanke's comments represented a rapid turnaround for the central bank, which had been focused on winding down crisis measures and a stimulus plan that left the Fed holding more than $1 trillion in assets.

But amid growing clamors for a re-entry rather than an exit strategy, doubts have also grown about whether the Fed has any arrows left in its quiver.

The bank's two main routes to stimulate the economy - lowering interest rates and buying up securities to provide market liquidity - appear blocked.

Interest rates are already at historic lows and concerns about the soaring US deficit would make buying up more assets deeply unpopular.

But Bernanke insisted the Fed could act if necessary.

"We do still have options," he said, outlining four measures that could help stimulate growth, including buying new assets and lowering selected interest rates.

Source: Global Times


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