New Delhi: Ben Bernanke said on Friday the Federal Reserve would act as needed to ease the impact of recent market turmoil on the economy, in a speech widely interpreted as opening the door to possible interest rate cuts.
US shares rose nearly 1 per cent on Friday as Mr Bush flagged changes to lending rules and urged lenders to work with home owners to renegotiate loan terms.
Investors were also heartened by a statement from US Federal Reserve chairman Ben Bernanke that he would "act as needed" to ensure financial market stability.
Mr Bernanke's assurances were interpreted as a signal that the Fed would cut interest rates later this month.
Most analysts viewed the remarks as a sign that the Fed is virtually certain to lower rates at its September 18 policy meeting, although the Fed chairman, who said the effects of market turmoil remained uncertain, did not make any commitment to do so.
In his most detailed remarks on the liquidity crisis since it began to intensify some three weeks ago, Mr Bernanke made it clear the central bank would not cut rates merely to bail out investors. He said:
“It is not the responsibility of the Federal Reserve – nor would it be appropriate – to protect lenders and investors from the consequences of their financial decisions,” Bernanke was quoted by The Financial Times.
But he added that developments in financial markets “can have broad economic effects felt by many outside the markets”.
The Fed would “act as needed to limit the adverse effects on the broader economy that may arise from the disruptions in markets”, Mr Bernanke told central bankers at their annual retreat in Jackson Hole, Wyoming.
With excerpts from The Financial Times report