Bernanke Says Fed Stands Ready if Economy Threatened

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Bernanke Testimony: Fed Prepared To Take Action to Protect Financial System

In prepared testimony before the Senate, Fed Chairman Bernanke says the Federal Reserve is prepared to take further action to protect financial system and the US economy in event that financial stresses rise.

Bernanke says that the European crisis "has affected the U.S. economy by acting as a drag on our exports, weighing on business and consumer confidence, and pressuring U.S. financial markets and institutions."

On the subject of Europe, the Fed Chairman adds, "Nevertheless, the situation in Europe poses significant risks to the U.S. financial system and economy and must be monitored closely. As always, the Federal Reserve remains prepared to take action as needed to protect the U.S. financial system and economy in the event that financial stresses escalate."

Bernanke also says the US economy is being pressured by headwinds from fiscal policy, noting that real spending by state and local governments has continued to decline.

"At best, rapidly rising levels of debt will lead to reduced rates of capital formation, slower economic growth, and increased foreign indebtedness," Bernanke said. "At worst, they will provoke a fiscal crisis that could have severe consequences for the economy."

Bernanke added that Congress must put the budget on a “sustainable long-run path” and avoid the “fiscal cliff”.

Note that while market expectations have ramped higher regarding addition Fed action, Bernanke’s prepared testimony does not offer any hints that additional monetary easing or stimulus is forthcoming.

We will be listening carefully to the Q&A and will report back with any incremental news.

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