US economy has taken a dive, admits Fed chief

Published on Friday 15 February 2008 09:42

BEN BERNANKE, the chairman of the US Federal Reserve, has admitted the outlook for the world's biggest economy has taken a turn for the worse.

But while vowing to act in "a timely manner as needed" to insure against the further downside risks, Mr Bernanke said he expected growth to pick up again. While admitting things were looking worse than they had just a couple of months ago, Mr Bernanke was cautious not to talk about the likelihood of a recession.

The Fed chairman hinted that further interest rate cuts could be in the pipeline if needed to stimulate the economy.

"Our policy stance must be determined in light of the medium-term forecast for real activity and inflation, as well as the risks to that forecast," he said.

The Fed has already lowered benchmark borrowing costs by 2.25 percentage points since mid-September, taking rates to three per cent.

Mr Bernanke painted a sombre picture of the risks facing the economy. He said the Fed would lower its projections for US growth in forecasts to be released next week, bringing them closer into line with views in the private sector.

In November, it had said the economy was likely to expand 1.8 per cent to 2.5 per cent this year.

However, the latest comments from Mr Bernanke reflected a slightly softer tone than remarks a month ago, when he said the Fed stood ready to take "substantive additional action" – a signal of the sharp rate cuts that followed late in the month.