Federal Reserve Chairman Ben Bernanke delivered a speech today at the London School of Economics on “The Crisis and the Policy Response.” Mr. Bernanke argued that the president elect’s stimulus package alone would not be enough to facilitate an economic recovery.

“In my view, however, fiscal actions are unlikely to promote a lasting recovery unless they are accompanied by strong measures to further stabilize and strengthen the financial system.  History demonstrates conclusively that a modern economy cannot grow if its financial system is not operating effectively,” said Bernanke.

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The Federal Open Market Committee concluded their meeting today by announcing that the new target for the Fed Funds rate will be between 0 and .25%. The Fed now has very little ammunition left to correct monetary policy through future Fed-Fund rate cuts.

As expected, Fed Chief Bernanke announced that economic conditions had “weakened further,” and that since “inflationary pressures have diminished appreciably,” the central bank was able to use most of the little ammo they had left.

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The Federal Open Market Committee (FOMC) will conclude their two-day meeting this afternoon, when countless experts predict the Fed officials in charge of setting monetary policy will trim the Fed Funds rate anywhere from .25%-.75%. With the rate temporarily hovering at one percent, the Fed doesn’t have much wiggle room left. As soon as the Fed Funds rate falls to zero, the central bank will have completely exhausted a particular problem-solving resource that has proven of late to have solved very little. Bernanke and Co. will be forced to develop a new plan of action — that plan, or proposal of action that will likely be hinted at the conclusion of today’s meeting, will be what market observers will be watching most closely.

For months we have continually asked what good another rate cut will do in the current economic environment? Many borrowers’ interest rates may already be at their floors (interest rates on some credit cards can never fall below 13%, for example). The benefit for consumers needs to come from some place else besides a lower Fed Funds rate. The central bank must stimulate and incentify private investors to once again fuel the flow of money. Encouraging private investors, not the government, to restore “normal” functionality back into various market places will restore not only what we have been missing, but could be the key to recovery.

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Federal Reserve Chief Ben Bernanke announced today that he supports the idea of a second stimulus package in an effort to reinvigorate our struggling economy. While the head of the central bank has no true authority in constructing a stimulus package, his comments should serve at least as a “heads up” to US lawmakers to begin mulling over the possibility. With the presidential election only weeks away, lawmakers will likely focus on the $250 billion Troubled Asset Relief Program (TARP), shelving the idea until after the election:

Even before the recent intensification of the financial crisis, economic activity had shown considerable signs of weakening. The unemployment rate, at 6.1 percent in September, has risen 1.2 percentage points since January. Incoming data on consumer spending, housing, and business investment have all showed significant slowing over the past few months, and some key determinants of spending have worsened:  Equity and house prices have fallen, foreign economic growth has slowed, and credit conditions have tightened.  One brighter note is that the declines in the prices of oil and other commodities will have favorable implications for the purchasing power of households.  Nonetheless, the pace of economic activity is likely to be below that of its longer-run potential for several quarters.

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In a speech delivered by Fed Chief Ben Bernanke today at the National Association for Business Economics in Washington, D.C., the head of the central bank signaled at the possibility of a rate cut in the near future. Bernanke referenced continued weak economic activity as well as the Fed’s concern over inflation:

Economic activity had shown signs of decelerating even before the recent upsurge in financial-market tensions. As has been the case for some time, the housing market continues to be a primary source of weakness in the real economy as well as in the financial markets.

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Crude-oil futures made history yesterday surging as much as $25 a barrel, the highest one-day gain since 1984, as investors took advantage of the opportunity to seize up one of the few remaining profitable investments:

It all just “underscores that energy is the only place to expect outsized profits these days and the money is flocking into that market,” he (Neal Ryan, a managing partner at Ryan Oil & Gas Partners) said.

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Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson are testifying before the Senate Banking Committee this morning on the financial markets and the pending government bailout.

Click here to listen live on CNBC.

Bernanke’s Testimony, from the Wall Street Journal: Read the rest of this entry »

In a speech today at the Forum on Mortgage Lending for Low and Moderate Income Households, Fed Chief Ben Bernanke announced the central bank will issue new rules next week designed to protect homebuyers from shady lending practices that contributed to the ongoing mortgage and credit crisis.

The new rules will prevent lenders from penalizing borrowers who pay off their loans early. Lenders will now be required to verify a borrower’s income before they begin to process their loan, and determine whether or not the borrower has funds available for taxes and insurance. Lastly, lenders must consider the borrower’s ability to pay back the loan through a source other than the home’s equity (value).

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