Bernanke says Fed will do 'whatever necessary' if euro crisis spreads (+video)
Chairman Ben Bernanke said the Fed is ready to make emergency loans to solvent banks to prevent financial panic. The Fed may also consider a new round of quantitative easing, he added.
Federal Reserve Chairman Ben Bernanke said America's central bank is ready to provide fresh support for the economy if a debt-related financial crisis in Europe escalates. But he stopped short of hinting at any immediate new efforts by the Fed to inject new monetary fuel into the US economy.
"[The Fed] stands ready to do whatever is necessary to protect our financial system," Mr. Bernanke said at a hearing of Congress's Joint Economic Committee Thursday morning.
Bernanke said US policymakers can do little to affect whether Europe steers toward resolving its crisis.
Instead, he framed the Fed's job as responding to conditions at home, including a recent weakening in job creation, and watching Europe for signs of ripple effects on things like US financial conditions and exports. He said events there – including upcoming elections in Greece, which could signal whether that nation is likely to exit the euro currency area and trigger worry about a wider eurozone breakup – could influence the already-fragile economic recovery for American workers.
What could the Fed do to spur the US economy?
One possibility that Bernanke said the Fed would examine at its next policy meeting, scheduled for June 19 and 20, is a new round of "quantitative easing" – bond purchases by the Fed. With the Fed already setting short-term interest rates near zero percent, buying Treasury bonds is a strategy by which the Fed has tried to reduce long-term interest rates and encourage investors to buy other assets such as stocks. Bernanke said past rounds of quantitative easing have worked, including by buoying the stock market.