Fed Stands Ready to Act If European Aftershocks Reach the US
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Fed Reserve Chairman Ben Bernanke has signalled that the American central bank is prepared to take any necessary steps required to protect the US economy if the European crisis deepens.
Bernanke told Congress that Europe poses “significant risks” to the US economy, adding that US economic recovery is not guaranteed. He said Fed officials need to monitor economic trends and data closely, including key indicators such as job creation.
Fed Reserve Chairman Ben Bernanke has signalled that the American central bank is prepared to take any necessary steps required to protect the US economy if the European crisis deepens.
Bernanke told Congress that Europe poses “significant risks” to the US economy, adding that US economic recovery is not guaranteed. He said Fed officials need to monitor economic trends and data closely, including key indicators such as job creation.
Job growth stalled for the fourth consecutive month in May, with US employers adding a mere 69,000 workers to their payroll. From December through February, job growth averaged 252,000 a month but have since slowed to a paltry 96,000 jobs a month.
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He said:
[quote] As always, the Federal Reserve remains prepared to take action as needed to protect the US financial system and economy in the event that financial stresses escalate. [/quote]
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However, Bernanke gave no clear indication whether further monetary stimulus was imminent.
Instead, he reiterated that monetary policy is “not a panacea” and called on politicians to “take some of this burden” from the Fed and address the key challenges facing the US economy.
He said “it would be much better to have a broad-based policy effort addressing a whole variety of issues.”
Bernanke laid out three guidelines for fiscal policymakers: To promote economic growth and stability via a sustainable federal budget; to avoid the tightening of fiscal policies – or the so-called fiscal cliff – set to kick in next year; and to promote a stronger economy in the medium and long term through the careful design of tax policies and spending programmes.
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On the European debt crisis, he said it was “acting as a drag on our exports, weighing in on businesses and consumer confidence, and pressuring US financial markets and institutions.”
He also said European policy makers will likely need to take additional steps to stabilise their banks, calm their markets, as well as come up with a credible and workable fiscal framework.
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