US ‘close to faltering’,Fed ready to act,says Bernanke

He made clear that the US central bank’s policy committee considers inflationary pressures well under control and given high unemployment,would be ready to ease monetary conditions further following the launch of a new stimulus measure in September.

“The Committee will continue to closely monitor economic developments and is prepared to take further action as appropriate to promote a stronger economic recovery in the context of price stability,” Bernanke told the Joint Economic Committee of Congress. His language was firmer than the policy-setting Federal Open Market Committee’s statement less than two weeks ago,when the Fed said it would monitor the outlook and was “prepared to employ its tools as appropriate.”

Since then,uncertainty about the outcome of the euro zone’s sovereign debt crisis has undermined US business and consumer confidence and helped to slow economic growth. The business cycle monitoring group ECRI last Friday said that the US economy is tipping into a new recession. Asked whether another round of bond purchases,known as quantitative easing,was in store,Bernanke was noncommittal.

“We never take anything off the table because we don’t know where the economy is going to go. We have no immediate plans to do anything like that,” he said.

The prospect of further Fed support for the economy lifted US stocks though,after the market saw selling early in the day,pushing the S&P 500 briefly dipping into bear market territory. Andrew Tilton,economist at Goldman Sachs,said contagion from the European crisis is a serious risk,threatening to tighten credit availability in the US and weaken exports to the region. “This impact is likely to slow the US economy to the edge of recession by early 2012,” he said.