Fed to Cut Rates Again

Federal Reserve Chairman Ben Bernanke told Congress Thursday that America’s economic outlook has deteriorated and signaled that he was prepared to cut rates as needed to stimulate the econonmy.

Bernanke said the one-two punch of the housing and credit crises has put much pressure on our struggling economy. Hiring has slowed and people are likely to tighten their belts further, as they are pinched by high energy prices and watch the value of their homes.

Is a recession pending? The forecast for the economy has worsened in recent months, and the downside risks to growth have increased,” Bernanke said. “To date, the largest economic effects of the financial turmoil appear to have been on the housing market, which, as you know, has deteriorated significantly over the past two years or so.”

Unsold homes have piled up and foreclosures have climbed to record highs.
Given all the dangers facing the economy, the Fed “will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks,” he said, indicating additional rate cuts were likely.

Bernanke appeared with Treasury Secretary Henry Paulson and Christopher Cox, chairman of the Security and Exchange Commission, amid increasing concerns that the economy may be drifting into recession.

The Federal Reserve, which started lowering a key interest rate in September, recently turned much more aggressive. Over the span of just eight days in January, it slashed rates by 1.25 percentage points — the biggest one-month rate reduction in a quarter-century. Economists and Wall Street investors believe the Fed will cut rates even more at its next meeting in March and probably again in April.

“Our economy is clearly in trouble,” said the committee’s chairman, Sen. Christopher Dodd, D-Conn. Restoring investor and consumer confidence, he said, is critical “if we are going to get back on our feet again.”

Bernanke said his forecast is for the economy to continue to endure a “period of sluggish growth.” That would be “followed by a somewhat stronger pace of growth starting later this year” as the effects of the Fed’s rate cuts and a newly enacted stimulus package begin to be felt. The $168 billion package, which includes rebates for people and tax breaks for businesses, was speedily passed by Congress last week and signed into law on Wednesday by President Bush. Analyst predict that will will continue to see Texas mortgage rates drop in the coming weeks and remain low for most of 2008.

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