Bernanke 'ready' for more support

13 July 2011 Last updated at 15:09 GMT Ben Bernanke said the Fed expects to keep interest rates near zero "for an extended period" The chairman of the Federal Reserve, Ben Bernanke, has said the US central bank is prepared to renew stimulus efforts if the economy remains weak.

The Fed's second quantitative easing programme (QE2) ended two weeks ago.

Speaking to members of Congress, Mr Bernanke also said the US could expect only "moderate" growth over the coming quarters.

He added that the inflation pressures seen in the first half of 2011 were "transitory" and should ease.

He cited higher commodity prices and the earthquake in Japan, which led to parts shortages and drove up vehicle prices, as reasons for why inflation picked up.

The Fed expects to keep its ultra-low interest rate policy in place "for an extended period", he said.

The dollar extended earlier losses against the euro following Mr Bernanke's comments, with the euro rising more than a cent to $1.4088.

Revised forecasts

"Once the temporary shocks that have been holding down economic activity pass, we expect to again see the effects of policy accommodation reflected in stronger economic activity and job creation," Mr Bernanke said.

"However, given the range of uncertainties about the strength of the recovery and prospects for inflation over the medium term, the Federal Reserve remains prepared to respond should economic developments indicate that an adjustment in the stance of monetary policy would be appropriate."

He added that Fed forecasts for June, which had already been significantly revised down from April, had not incorporated recent data such as last week's employment report.

That data showed that job creation all but ground to a halt last month, with only 18,000 new jobs created, and the unemployment rate rising to 9.2%.

Analysts said that Mr Bernanke had only raised the possibility of a further stimulus, and was not saying that it was necessary.

"In general, Bernanke's testimony has not changed our view that monetary policy is on hold," said Dana Saporta, economist at Credit Suisse in New York.

"The hurdle for a QE3 is too high right now, but if the European peripheral crisis intensifies, further policy accommodation might be considered."

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Bernanke warning on US debt limit

15 June 2011 Last updated at 00:13 GMT Ben Bernanke suggested stabilising the deficit as a proportion of the total economy The chairman of the US Federal Reserve, Ben Bernanke, has warned that the country's creditworthiness is at risk if its borrowing limit is not raised.

He said the US could lose its coveted AAA credit rating if Congress did not vote in favour of lifting the $14.3 trillion (?8.7 trillion) debt ceiling.

If there is no deal by August, the US may start defaulting on obligations.

Vice-President Joe Biden and congressional leaders have resumed efforts to find a bipartisan solution.

They are trying to reach an agreement that would tie spending cuts with an increase in the debt limit. They are expected to discuss annual spending levels, budget process reforms, taxes and healthcare benefits.

"We're making real progress, we're down to the tough stuff now and everybody's still in the room," Mr Biden said after Tuesday's meeting.

President Barack Obama and the Speaker of the House of Representatives, John Boehner, want an agreement by 4 July.

'Wrong tool'

At a conference on Tuesday organised by a think tank, the Committee for a Responsible Federal Budget, Mr Bernanke said any delay in the US government making payments could cause chaos on global financial markets.

Continue reading the main story US government currently runs a $1.5tr budget deficit, requiring it to issue debt in the form of treasury bills, bonds and other securitiesPublic debt was $14.3tr on 31 May, up from $10.6tr when Mr Obama took office in January 2009.Most is held by the public, with the rest held in US government accountsCongress has voted to raise the US debt limit 10 times since 2001

Sources: US Treasury, Congressional Research Service, Congressional Budget Office

It could also damage the dollar's status as a reserve currency, he warned.

Mr Bernanke said he understood the desire of many politicians to use the deadline to force some necessary and difficult policy adjustments, but said the debt limit was "the wrong tool for that important job".

"Failing to raise the debt limit would require the federal government to delay or renege on payments for obligations already entered into."

"Even a short suspension of payments on principal or interest on the treasury's debt obligations would cause severe disruptions in financial markets and the payments system."

In addition, Mr Bernanke said US government debt risked being downgraded, creating fundamental doubts about the nation's creditworthiness.

Long-term damage to the "special role" of the dollar and of treasury securities in global markets was also possible, he said.

Instead of allowing a default, Democrats and Republicans needed to develop a credible long-range plan to rein in the nation's budget deficit, Mr Bernanke added.

An increase of $2.5 trillion would allow the government to operate until early 2013.

He suggested stabilising the deficit as a proportion of the total economy, and lowering the figure over time. Deficit-reduction goals should be set and enforced with a mechanism triggering automatic cuts.

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