February 25, 2021

World Looks for Reassurance That the Fed Will Take Steps

With the global economy sputtering and financial markets on the rocks, the world is looking for reassurance that the United States central bank stands ready to save the day.

Much attention will focus on a speech on Friday by Ben S. Bernanke, the Federal Reserve chairman, in Jackson Hole, Wyo., where policy makers and academics are meeting as part of an annual symposium.

Last year, Mr. Bernanke used the forum to suggest that the Fed could help growth by buying long-term bonds, a prelude to a program that did just that.

However, no grand new plan is expected this year, in part because the Fed already pledged this month to keep interest rates near zero into 2013.

“Markets are increasingly hoping there will be some signs that the Fed will come running to the rescue,” said Paul Dales, an economist at Capital Economics in Toronto. Many economists said they expected Mr. Bernanke to explain what was in his policy toolbox while promising to use those tools if necessary.

One danger looming over the world economy, which could compel Mr. Bernanke to act, is the prospect that the European sovereign debt crisis could worsen.

Investors are becoming more nervous daily that a new recession threatens.

Economists see rising risks that growth could evaporate in the United States, while Europe languishes in a debt crisis. Even strong performers like the economies of China and Brazil show signs of slowing.

Moreover, stocks have plunged, further threatening the economy because consumers could pull back if they sense their retirement savings are dwindling.

Investors have rushed into United States Treasuries as a haven, and the yield on the 10-year note last week fell below 2 percent for the first time since at least the early 1960s.

Already, worries over European debts are rattling the markets, leading investors to demand that some European governments pay higher interest rates to borrow.

Investors have shunned the debt of Ireland, Portugal and Greece, and now market forces appear to be tilting against larger countries, threatening to create a much larger crisis.

Policy makers are scrambling to contain this, with the European Central Bank buying Italian and Spanish bonds this month.

But the European Central Bank is internally divided over that move, increasing anxiety for investors. On Monday, the central bank will release figures that could show how committed it is to propping up Italy and Spain.

A bad reaction by investors to that data, or to revised readings due this week on United States and British second-quarter economic performance, could increase pressure on Mr. Bernanke to act.

Article source: http://feeds.nytimes.com/click.phdo?i=bd9cf14848c1146a811eb41847ddd621

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