The improvement in the functioning of credit markets since the Federal Reserve cut interest rates has reduced the risk to the near-term economic outlook, Ben Bernanke on Monday said in a speech that suggests the decision on whether to cut rates again this month will be a tough one reports the Financial Times.
Mr Bernanke said the improvement “increases the likelihood of achieving moderate growth with price stability”. However, the Fed chairman warned that the “ultimate implications of financial developments for the cost and availabilty of credit, and thus for the broader economy, remain uncertain”. He told the New York Economic Club that a full recovery of market functioning “is likely to take time” and warned “we may well see some setbacks”.
Investors are “continuing to reassess the risks they face” and have not yet fully regained confidence, he said.
Mr Bernanke highlighted the contrast between financial markets in general, which have improved since mid-August, and mortgage markets, which have not.
“Despite a few encouraging signs, conditions in mortgage markets remain difficult,” Mr Bernanke said. There was very little secondary market activity in non-prime mortgages and not much improvement in prime jumbo mortgages.
Read it here: Bernanke Sees Better Near-Term Outlook