Federal Reserve Chairman Ben Bernanke has said that further interest-rate cuts are "certainly feasible," but he warned there are limits to how much such action would revive an economy likely to stay weak well into next year.
The Fed's key interest rate now stands at 1 per cent, a level seen only once before in the last half-century. To help lift the US out of a recession that started in December of last year, many economists predict Bernanke and his colleagues will drop the rate again at their next meeting on December 15-16.
Bernanke spoke yesterday just hours after the National Bureau of Economic Research announced that the US economy has been in a recession since December 2007.
He didn't mention the NBER's finding in his speech to business leaders in Austin, Texas, nor in answering questions afterward. However, Bernanke warned that the economy likely will remain stuck in a slump.
"Even if the functioning of financial markets continues to improve, economic conditions will probably remain weak for a time," he said.
In his speech, Bernanke noted that the bracing impact of the Fed's aggressive rate reductions has been somewhat stymied by the worst credit and financial crises to hit the world economy since the 1930s. Despite lower borrowing costs ordered by the Fed, skittish banks have been reluctant to lend money to people and businesses, a vicious cycle that has seriously hobbled the US economy.
