If the economy continues to limp, the Fed will cut rates yet again. The same goes if the specter of deflation comes back to knock on the door, bringing the nightmare of the downward spiral of prices and wages closer. This is the message launched today by Ben Bernanke, president of the American Central Bank, speaking to the House Financial Services Committee. "There remains the possibility that the recent weakness of the economy will prove to be more persistent than expected - explained the banker - and therefore risks of deflation may re-emerge".
As for the effectiveness of the 600 billion dollar bond purchase program completed at the end of June, the Fed chairman believes that the operation has succeeded in "containing funding costs and stimulating growth". Bernanke instead avoided talking about the worrying political stalemate that is holding back the country in a very delicate economic moment. It is vital for the US that Republicans and Democrats find an agreement as soon as possible to raise the sovereign debt ceiling and thus avert the danger of technical default.
