The Fed chairman made it clear that there would be no rate cuts simply to bail out investors, declaring 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.”
But he also said that 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.”
The overall tone of the Fed chief’s remarks, at the opening session of its annual retreat in Jackson Hole Wyoming, suggested that the US central bank remains quite uncertain about the likely future path of interest rates.
This stands in contrast to the apparently high degree of certainty in the markets that the Fed will soon embark on a series of rate cuts.
Mr Bernanke’s speech came ahead of an address by President George W. Bush at 11AM east coast time that is expected to propose using the Federal Housing Administration to help homeowners escape defaulting on their subprime mortgages. He is also expected to outline reforms which might help avoid a repeat of the subprime fiasco.