Fed Chief Vows to Protect the Economy

By JEANNINE AVERSA
The Associated Press
Friday, August 31, 2007; 5:14 PM

JACKSON, Wyo. -- Federal Reserve Chairman Ben Bernanke vowed Friday to do all that is necessary to protect the national economy from the ill effects of a global credit crunch _ but not to bail out investors and lenders "from the consequences of their financial decisions."

President Bush confidently predicted the country would safely weather the financial storm.

Friday's comments _ made in separate appearances _ by Bernanke here and the president in Washington, sought to send a reassuring but tough love message: Fed policymakers and the Bush administration are on top of the situation that has unnerved investors on Wall Street and around the world and raised anxiety on Main Street. But they'll act in the best interests of the economy.

While Bush announced steps Friday to help homeowners struggling to make their mortgage payments, he made clear he has no interest in bailing out lenders, some of whom got cocky, took on too much risk and ended up with bad loans.

"The government's got a role to play, but it is limited," Bush said at the White House. "A federal bailout of lenders would only encourage a recurrence of the problem."

In anxiously awaited remarks, Bernanke suggested the Fed's next move will be driven by economic considerations, not only in response to troubles of investors and lenders.

"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," Bernanke said. "But 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 when determining policy."

Still, many believe the odds are growing that the Fed will cut its most important interest rate, now at 5.25 percent, by at least one-quarter percentage point on or before Sept. 18, its next regularly scheduled meeting. The Fed hasn't lowered this rate in four years.

The Fed "will act as needed to limit the adverse effects on the broader economy that may arise from the disruptions in financial markets," Bernanke told an economics conference here.

On Wall Street, stocks rose after Bernanke's remarks. The Dow Jones industrials was up 119 points Friday.

The fear is that if credit continues to become harder for people and businesses to get, spending and investment will be crimped. That could hurt overall economic growth. In a worst-case scenario, the country could slide into a recession. Credit is the economy's life blood. It enables people to finance big-ticket purchases such as homes and cars and can help businesses bankroll expansions and other things that can boost hiring.

Bush, however, predicted the economy would get through the financial crisis and urged patience.


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