U.S. Federal Reserve Chairman Ben Bernanke warned Monday that there are limits to how much further interest rate cuts would revive an economy that is likely to stay weak well into next year.
"Although further reductions ... are certainly feasible, at this point the scope for using conventional interest rate policies to support the economy is obviously limited," said Bernanke in a speech to business leaders in Austin, Texas. A copy of the speech was made available on the Fed website.
But there are other ways that the Fed might bolster economic activity, the chief of the U.S. central bank said.
For instance, the Fed could buy longer-term Treasury or agency securities on the open market in substantial quantities. This might lower rates on these securities, thus helping to spur aggregate demand, he said.
To help overcome the financial crisis and bolster the economic growth, the Fed has taken aggressive rate reductions since last September. Its key interest rate now stands at 1 percent, a level seen only once before in the last half-century.
Bernanke noted in the speech that the bracing impact of the aggressive rate cuts has been somewhat stymied by the worst credit and financial crises to hit the world economy since the 1930s.
Despite lower borrowing costs ordered by the Fed, banks have been reluctant to lend money to people and businesses.
About the economic outlook, Bernanke warned that the economy likely will remain stuck in a slump.
"Despite the efforts of the Federal Reserve and other policymakers, the U.S. economy remains under considerable stress," he said.
He said that "even if the functioning of financial markets continues to improve, economic conditions will probably remain weak for a time."
Many economists predict Bernanke and his colleagues will drop the rate again at their next meeting on Dec. 15-16.
The Fed can lower its key rate to zero. But nominal interest rates cannot fall below zero.
The U.S. economy declined at an annual rate of 0.5 percent in the third quarter. Economists believe that it will continue to fall in the final quarter of this year and early next year.
Source:Xinhua
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