Bernanke Says Fed ‘to Act As Needed’

U.S. Federal Reserve Chairman Ben Bernanke said Friday the Fed stood ready to act as needed to ease financial disruptions on the economy.

His remarks for delivery at the annual Kansas City Fed seminar in Jackson Hole, Wyo., suggested the central bank is set to lower rates unless short-term credit market conditions improve, The Wall Street Journal said.

U.S. stock market investors expect a rate cut to come at the Fed’s meeting Sept. 18. The federal funds rate has stood at 5.25 percent for more than a year. Futures markets are pricing in multiple rate cuts by the end of the year.

The further tightening of credit conditions, if sustained, would increase the risk that the current weakness in housing could be deeper or more prolonged than previously expected, with possible adverse effects on consumer spending and the economy more generally, Bernanke said.

Global financial losses (triggered largely by subprime mortgage concerns) have far exceeded even the most pessimistic projections of credit losses on those loans.

Bernanke said the Fed is monitoring developments in housing and the economy closely.

The housing downturn has been sharp, Bernanke said, and further declines in homebuilding are likely.

Delinquencies among subprime borrowers with adjustable-rate mortgages are likely to rise when those borrowers face interest-rate resets in coming quarters.