WASHINGTON (Thomson Financial) - Federal Reserve Board Chairman Ben Bernanke
said he and his colleagues at the central bank are ready to give a jolt to the
US economy if the current market turmoil spills over into the broader economy.
"The Fed is closely monitoring developments in financial markets" and "is
prepared to act as needed to mitigate the adverse effects on the economy arising
from the disruptions in financial markets," Bernanke said in a letter to New
York Democratic Senator Charles Schumer, dated Monday and released today.
In the letter, Bernanke also said that asset limits on Fannie Mae and
Freddie Mac investment portfolios "need not be lifted to allow them to
accommodate new borrowers."
The Schumer letter was largely a repetition of the points Bernanke made in
his meeting last week with Senator Chris Dodd, a Connecticut Democrat and head
of the Senate Banking Committee.
However, Miller Tabak analyst Tony Crescenzi said the "most intriguing" part
of the Bernanke letter "was his idea for a public/private solution to the
subprime problem."
The Fed chief suggested a collaboration to develop "a broader range of
mortgage products which are appropriate for low-and moderate-income borrowers,
including those seeking to refinance."
Such new mortgage products could be put in place to help the thousands of
homeowners facing "payment shock" when their variable rate mortgages reset to
higher interest rates and payments later this year and in 2008.
Bernanke suggested Congress might allow the Federal Housing Administration
to begin developing such mortgage refinancing options.
dennis.moore@thomson.com
dem/cbd/wash
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