December 1, 2008 3:00PM
Bernanke Knows His Hands are Tied
By Ray Hennessey
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A quick tidbit from Fed chair Ben Bernanke's speech today in Austin:
"(A)lthough further reductions from the current federal funds rate target of 1 percent are certainly feasible, at this point the scope for using conventional interest rate policies to support the economy is obviously limited."
Bernanke notes that nominal rates have been well below 1 percent for a while, and the Fed is "constrained by the fact that nominal interest rates cannot fall below zero."
That means that those betting on another 50-basis-point cut in December may be sorely disappointed.
On the good-news front, Bernanke does note that the Fed still can pump the economy with liquidity.
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