The setting was marked by a struggling US economy with continuing employment difficulties, a weak housing industry and a burgeoning deficit, which could erode investor self-confidence. Bernake's position was position was sandwiched among stimulating the economy, although also satisfying congressmen on the challenging political query of the fiscal deficit. The deficit has reached unmanageable proportions due to the fiscal stimulus provided by the government. Nonetheless, the continuation of government spending is nonetheless required to maintain the US economic climate on a recovery path and its withdrawal at this point of time could lead the US economic system to slip back into recession.

Offered all these constraints, Bernake appears to have accomplished his task properly. His essential move was to announce that the Fed would carry on to hold interest rates close to zero for several months in order to supply effortless liquidity for the economy to recover. He stated that in view of the sluggish economic climate, a weak housing industry additional constrained by a higher unemployment rate required interest rates to be kept reduced for an extended period. Any move to improve interest rates at this point of time could prove to be damaging to the US financial recovery. On the issue of the 7 billion dollar stimulus package, which had increased the fiscal deficit of the US and, which some lawmakers think has accomplished small to assist the economic system, Bernake's view is that in its absence, matters could have been much worse for the US economy. Although, the US economy has enter a constructive development cycle, the housing sector could be in for an additional round of disturbance as large number of Americans have been out of jobs or have moved to lower having to pay jobs and may possibly be unable to preserve having to pay their mortgages. This could lead to a second wave of homes coming into the resale marketplace and result in a fall in their rates.

Thus, policy makers face a dilemma at present. On the one particular hand the deficit desires to be curtailed before investors who fund the deficit shed self-confidence in the US government paper, and on the other hand, the US economic climate needs the support of the government or it may possibly slip back into recession. The .6 trillion US deficit represents practically ten% of the nation's GDP, which desires to be brought down to three% for it to be manageable. This can only occur the moment the economic climate is back on a growth trajectory and the tax collections choose up. Thus, it is a vicious cycle and at this point of time, withdrawal of financial stimulus could plunge the economic climate back into recession, erasing the current gains produced.

In any situation Bernake speak gave clarity that the monetary policy would not be tightened for some time to come, which ked the dollar to weaken somewhat and at the exact same time it signaled that the economic climate still had the benefit of inexpensive credit for a longer period so the stock markets looked up.

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