The headlines read "Chairman Bernanke Says Fed Ready
to Cut Interest Rates as Needed." Well, not exactly. What Federal Reserve
Chairman Ben Bernanke actually said, in remarks on Thursday was "We stand ready
to take substantive additional action as needed to support growth and to provide
adequate insurance against downside risks."
Bernanke made his remarks in a speech to a housing and economic forum in Washington,
DC. He reviewed the history of the housing slowdown and the credit crunch and
the various recent moves on the part of the Federal Reserve to shore up the
economy including lowering its principal rate three times last year to a two
year low of 4.25 percent and introducing a term auction facility or TAF through
which specified amounts of discount window credit can be auctioned to eligible
borrowers, successfully auctioning $40 billion to banks in December.
In spite of the fact that the Chairman did not mention numbers in his statement
about the Fed's readiness, many economists expect that the Fed will slash
its key interest rate by a half-point at its next meeting at the end of the
month. Others think that many members of the Fed board are more worried about
inflation than a recession given $100 per barrel oil and the Feds will limit
any cut to one-quarter point.