Bernanke: Fed will act on EU fallout

Washington - Europe’s financial crisis still threatens the US recovery, and the Federal Reserve will do everything it can to prevent it from damaging the economy, Federal Reserve Chairman Ben Bernanke said on Thursday.

Testifying before Congress, Bernanke said he was seeing signs that some of the uncertainty dampening US business investment, including European banking woes, might be waning.

But he said it was far too soon to say whether the United States could remain unscathed.

“Risks remain that developments in Europe or elsewhere may unfold unfavourably and could worsen economic prospects here at home,” Bernanke told lawmakers in prepared remarks.
 
“We are in frequent contact with European authorities, and we will continue to monitor the situation closely and take every available step to protect the US financial system and the economy.”

Bernanke maintained a cautious tone on the US outlook following a decision at a Fed policy meeting last week to announce that interest rates are likely to remain near zero until at least through late 2014.
 
At a news conference after that meeting, Bernanke indicated the central bank was considering additional monetary easing, but he offered no fresh hints of such plans in his testimony.

After slashing interest rates to near zero in late 2008, the Fed bought $2.3 trillion in bonds in a further effort to spur the economy. Many analysts expect it will further expand its portfolio in the months ahead with another round of purchases.