Fed Committed to Prevent Second Recession

Federal Reserve chief Ben Bernanke says the central bank "will do all that it can do to ensure continuation of the economic recovery."

August 31, 2010

WASHINGTON - With economic news last week that showed the economic recovery is stumbling, Fed Chairman Ben Bernanke vowed that the central bank would do all it could to prevent the U.S. from slipping back into a recession, the Los Angeles Times reports.

Bernanke's pledge came after the Commerce Department downgraded second-quarter growth, an indicator that the risk of a "double dip" recession had increased.

"We have come a long way, but there is still some way to travel," Bernanke said, adding that the Fed "will do all that it can do to ensure continuation of the economic recovery."

He predicted economic growth to resume in 2011, stressing that the economy was still improving. The annualized growth rate of 1.6 percent was sharply down from last month's estimate of 2.4 percent.

"He had to walk a fine line between worrying people about the outlook yet saying if the outlook does worsen, we will take the steps necessary to come to the aid of the economy," said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi in New York. "I think the market kind of likes the idea that he stands ready to do things."

Bernanke outlined three options for buttressing the fragile economy: The Fed could expand purchases of long-term securities, lower the interest rate it pays to commercial banks for their reserves, or make more public assurances.

"They still have some pretty good ammunition," said Brian Bethune, chief U.S. economist at IHS Global Insight.

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