Lowering interest rates by Claudia Sonea

The Federal Reserve Chairman Ben Bernanke revealed on wednesday that due to oil prices reaching record heights, the housing and credit crises interest rates will be lowered again just to avoid recession. He suggested in an appearance before the House Financial Services Committee to slice a key interest rate and help the economy in order to not get to a recession, if they are not already in one. The housing slump has worsened, credit problems have intensified and the job market has deteriorated creating the combination of bad news that determines people and businesses to be more cautious about spending and investing, thus weakening the economy. Bernanke said that stagnant growth combined with rising inflation usually leads to stagflation (last time in the 1970s). If the oil prices continue their sharp rise there will be a very difficult problem for the economy, because inflation would spread and growth would be further restrained. Bernanke assured that the Fed will support growth and provide adequate insurance against downside risks. It will be a continuation of the lowering process started in September (over 8 days in January the Fed shaved 1.25 percentage points, the biggest one-month reduction in a quarter-century). Another issue is to be sure that monetary policy is properly calibrated to foster the Fed's objectives of price stability, according to Bernanke that hoped previous rate reductions and the $168 billion economic aid plan of tax rebates for people and tax breaks for business would energize the economy in the second half of 2008. Meanwhile, there are more bad news on the housing and manufacturing fronts with sales of new homes that fell in January for a third straight month and dropping orders to factories for big-ticket manufactured goods. The senators kept inquire Bernanke and acknowledged that he has been the subject of many controversies. The asked when he thought the housing market might stabilize. He however avoided giving a clear forecast because they were wrong before and it is a very tricky market. They must remain mindful of inflationary pressures, Bernanke said, keeping in count that oil prices despite easing lately, they still remain close to $100 a barrel.

related story: http://news.yahoo.com/s/ap/20080227/ap_on_bi_ge/bernanke_congress;_ylt=ApmLkG_THouHEGz.X_KGA1.s0NUE

by Claudia Sonea for PocketNews (http://pocketnews.tv)

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