The U.S. is undergoing the worst financial crisis since the Great Depression, but there are some "tentative signs that the sharp decline in economic activity may be slowing," according to Fed Chairman Ben Bernanke on Tuesday.
In a speech leaked by U.S.A. Today to be delivered on Tuesday afternoon, the Chairman said the Federal Reserve has taken action to stabilize the financial system, including substantially lowering interest rates, and introducing groundbreaking facilities to provide credit to financial entities.
"Restoring stability to the market for housing and home mortgages has been a particular area of concern," he said, commenting on the recent decision to buy long-term Treasuries in order to bring down mortgage rates.
Bernanke also defended the Federal Reserve's decision to intercede and provide capital to financial institutions.
"As a general rule, my strong preference is that any firm that cannot meet its obligations should bear the consequences of the marketplace," he said. "But recent circumstances have been truly extraordinary."
He said the Federal Reserve continues to treat, "its obligation to ensure price stability extremely seriously."
Although inflation is expected to remain low for some time, a recovery in growth should spur price increases once again, he said.
Nevertheless, a true recovery will be impossible until financial and credit markets stabilize, he said, adding that there have been improvements in both sectors in part thanks to actions taken by the central bank.