Ben Bernanke says US economy 'close to faltering'

[Gerald]

US Federal Reserve Chairman Ben Bernanke has told Congress that the US economy is "close to faltering" and more action may be needed.Giving testimony to the US legislature, he said the Fed was "prepared to take further action as appropriate" to bolster the recovery.His comments come after the Fed already decided to shift $400bn of investments into longer-term government debt.Stock markets responded positively, with the Dow Jones rallying over 1%.But US markets fell back again somewhat in afternoon trading.

China 'blocking'

He said the switch into longer-term government debt announced last month - dubbed Operation Twist - was the equivalent of a half-percentage-point cut in interest rates, and gave a "meaningful, but not an enormous support to the economy".But he warned that the eurozone debt crisis, as well as overly hasty spending cuts by the federal government, risked undermining the US recovery.When asked what additional action the Fed might take if the economy continued to weaken, he reiterated policy options he has laid out in past speeches:giving clearer guidance as to how long interest rates will be held close to zero, and in what circumstances they would rise;increasing "quantitative easing" - the Fed's purchase of US government bonds and other debts;cutting the interest rate paid on excess cash that the banks hold at the Fed.But he added that the US central bank's monetary policies were "no panacea".

http://www.bbc.co.uk/news/business-15173683



Note: 4 October 2011 Last updated at 19:24 GMT