US Fed chairman Bernanke 'ready to act' on economy

Ben Bernanke: ''The stronger our economy the better able we would be to withstand a financial spillover from problems in Europe''

The chairman of the US Federal Reserve Bank said he is monitoring risks to the economy and is prepared to take action.

Ben Bernanke was giving testimony to the US Congress, something which has been closely watched by investors looking for signs the bank plans to introduce additional stimulus measures.

Mr Bernanke warned that international pressures, such as the eurozone crisis, posed risks for the US economy.

But he gave few hints of any change to policy soon.

His tone stood in contrast to remarks made in a speech late on Wednesday by his vice chairman, who pointed to a list of weaknesses in the US economy and appeared to lay out the case for further central bank support.

Janet Yellen's list included continuing housing problems and a weak jobs market.

Mr Bernanke told Congress the Fed was closely monitoring "significant risks" to the US from Europe's debt crisis, but said that "despite economic difficulties in Europe, the demand for US exports has held up well".

Jobs

On Wednesday, the Fed's Beige Book, which takes survey evidence from businesses across the country, concluded that overall economic activity had quickened in the period between early April to late May.

But there have been worries about the weakness of the US recovery, underlined by news last week of lower-than-expected jobs growth.

He said employment growth was one of the key issues he and the rest of the Fed's Open Markets' Committee (FOMC), which meets regularly to decide on monetary policy, would be looking at in the next meeting.

He also said he expected inflation to stay at or slightly below the 2% target set by the Federal Reserve.

Rising inflation is the main issue for those arguing for no loosening in policy.

Mr Bernanke did warn that government tax policy could derail economic growth, pointing to so-called "fiscal cliff" legislation that could force a steep cut in government spending alongside higher taxes, a move some economists say could send the country back to recession.

His comments echo those from the European Central Bank (ECB) head, Mario Draghi, who declined to add any monetary stimulus following the ECB's regular meeting, saying that "it is not right for monetary policy to fill other institutions' lack of action".

In a seperate move, the ratings agency Fitch warned that if the US did not sort out its own budget deficit which Mr Bernanke said in his speech had been averaging 9% over the past three years, it risked a cut in its top AAA rating.

The US is one of only four countries rated at this level.

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