Federal Reserve Chairman Ben Bernanke said
Thursday that the central bank was "prepared" to act to spur economic
growth as long as inflation remains under control.
He said that the U.S. banking sector is now better prepared to
weather even a severe economic downturn, including shocks from the
eurozone crisis.
E.U. leaders however have much work left to tackle the eurozone
crisis, Bernanke told Congress, and first on his list was action to
stabilize euro-area banks.
"U.S. banks have greatly improved their financial strength in recent
years," he said in testimony to a joint committee of the Senate and
the lower House. "Nevertheless, the situation in Europe poses
significant risks to the U.S. financial system and economy and must be
monitored closely."
Bernanke said that the crisis in Europe has hurt US exports, put
pressure on U.S. markets and financial institutions and undermined the
confidence of both U.S. consumers and producers.
"Concerns about sovereign debt and the health of banks in a number
of euro-area countries continue to create strains in global financial
markets," he said.
The rate-setting U.S. central bank has "taken steps to make sure
we're as well prepared as possible ... (and) stands ready to do
whatever is necessary to protect our financial system," Bernanke
said.
With a possible E.U. bailout brewing for strapped Spanish banks,
Bernanke said that despite actions already taken in Europe, more was
likely to be needed. His to-do list for the region: "stabilize
euro-area banks, calm market fears about sovereign finances, achieve
a workable fiscal framework for the euro area and lay the foundations
for long-term economic growth."
With the Federal Reserve's benchmark interest rate already near
zero, Bernanke told Congress that the Fed's rate-setting Open Market
Committee was ready to "adjust" its holdings of government bonds to
"promote a stronger economic recovery."
By moving its bond holdings into long-term instruments, the Fed
can indirectly inject money into the private sector and push
long-term interest rates even lower.
He said that economic growth has "continued at a moderate pace so
far this year," with long-term inflation expectations "quite
well-anchored."
Domestic demand early this year improved enough to offset a
decline in government spending, mostly at the state and local levels,
Bernanke said.
"However, some of the factors that have restrained the economy
persist," he said. "Notably, households and businesses still appear
quite cautious about the economy."
Even employed workers see few prospects for increased income and
continue to restrain their spending accordingly. Persistent high
unemployment, which edged up to 8.2 percent last month, further
limits spending and chills the sentiment of people with jobs.
"Similarly, concerns about developments in Europe, U.S. fiscal
policy and the strength and sustainability of the recovery have left
some firms hesitant to expand capacity," Bernanke said.
The long-dormant U.S. housing market, which precipitated the 2008-09
recession, remains "depressed" and continues to be "an important drag
on the recovery," he said.
