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New York TimesFed Chief Signals Further Rate Cut By LOUIS UCHITELLE and MICHAEL M. GRYNBAUM
Published: January 11, 2008
Presenting a bleak picture of a deteriorating national economy, Ben S. Bernanke, chairman of the Federal Reserve, strongly suggested on Thursday that the Fed would cut interest rates soon, perhaps by a large amount.
“The outlook for real activity in 2008 has worsened,” Mr. Bernanke said after describing all the forces dragging down the economy. “We stand ready to take substantive additional actions as needed to support growth and to provide adequate insurance against downside risks.”
With fears rising that the economy is sliding into recession, Mr. Bernanke’s blunt assessment is expected to encourage politicians to call on Congress to take steps that would stimulate growth beyond what the Fed can achieve through lower interest rates. Many analysts now expect the Fed’s policy makers to cut half a percentage point off the Fed’s benchmark interest rate, reducing it to 3.75 when they next meet, on Jan. 29 and 30. They expect the Fed to continue cutting, to 3 percent or even lower by summer, to prevent — or at least mitigate — a recession. The goal would be to get people to borrow and spend more.
Consumer spending, however, may already have hit a wall. Shortly before Mr. Bernanke spoke, at a Washington luncheon, the nation’s biggest retailers announced that holiday sales gains were the weakest in the last five years. Only Wal-Mart gained ground, after it slashed prices to draw jittery consumers.
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