Bernanke: Fed ready to cut interest rates again

“It’s hard to imagine after hearing such strong comments from Bernanke that the Fed will not cut by half a percentage point,” said Richard Yamarone, economist at Argus Research. “Anything less would roil the financial markets,” he added.

Asked about a stimulus package being explored by the White House, Bernanke did not offer details. He did say he is interested in seeing “what emerges” and what options might be put on the table.

Galloping energy prices — oil recently surged past $100 a barrel before easing — can put a damper on economic growth and can also spread inflation through the economy if they force companies to boost the prices of many goods and services.

Bernanke acknowledged the situation could complicate the Fed’s job of trying to keep the economy growing, while making sure that inflation is under control.

So far, he said, people and companies have “reasonably well-anchored” expectations about where they think inflation will head in the months ahead, Bernanke said. “However, any tendency of inflation expectations to become unmoored or for the Fed’s inflation-fighting credibility to be eroded could greatly complicate” the Fed’s task of maintaining stable prices, he said.

To help squeezed banks deal with credit problems, the Fed recently created a new auction facility for financial institutions to go to for short-term loans. The Fed in December provided $40 billion worth of loans to banks and will provide another $60 billion in two auctions in January.

Bernanke said these auctions will continue “as long as necessary” to help banks get over credit humps so that they will keep lending to people and companies. The auctions, Bernanke said, “may thus become a useful permanent addition to the Fed’s toolbox.”

Will the upcoming presidential elections color the Fed’s decisions on interest rates? Bernanke offered a flat no. “Political considerations will play no role. We will be objective. We will be analytical, and we will do what is right for the economy.”

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