Big Ben Assures Wall Street Fed Will Act
Bernanke says Fed will act as needed to limit fallout from credit crisis.
Aug. 31, 2007— -- In the beauty of the Grand Teton National Park, Fed Chairman Ben Bernanke made what could easily be categorized as the most important speech of his tenure leading the nation's central bank.
Pretty much everyone on Wall Street was waiting for the release of the speech's full text hoping to get some assurance that Ben & Co. were serious about a rate cut to deal with the recent credit and stock market volatility.
They weren't disappointed.
"The Federal Reserve stands ready to take additional actions as needed to provide liquidity and promote the orderly functioning of the markets," said Bernanke just three pages into a 12 page speech.
He went on to repeat the fairly direct assurance of a rate cut a second time to underline that the Fed knows what the markets are screaming for.
This year's topic for the Kansas City symposium focused on housing and monetary policy, a particularly prescient choice given the recent trouble that subprime mortgages have brought to the markets.
Bernanke acknowledged as much in the first sentences of his speech, laying blame for the seizing of the credit markets and stock market volatility at the feet of those subprime loans. He said the issues could affect the broader economic health of the country.
"Although this episode appears to have been triggered largely by heightened concerns about subprime mortgages, global financial losses have far exceeded even the most pessimistic projections of credit losses on those loans," said Bernanke. "In part, these wider losses likely reflect concerns that weakness in U.S. housing will restrain overall economic growth."
But Bernanke doesn't want to be seen as running in to bailout lenders who lowered their standards and started underwriting loans that borrowers simply can't pay back.
"It is not the responsibility of the Federal Reserve – nor would it be appropriate – to protect lenders and investors from the consequences of their financial decisions," said Bernanke. "But developments in financial markets can have broad economic effects felt by many outside the markets, and the Federal Reserve must take those effects into account when determining policy."
