Bernanke says Fed hoping for best, ready for worst with Europe

WASHINGTON -- Federal Reserve Chairman Ben S. Bernanke said the central bank was hoping for the best concerning the European debt crisis but was ready to step in with more forceful action if needed.

“We are hoping for the best ... but we are prepared in case things get worse to protect the U.S. economy and the U.S. financial system,” Bernanke told reporters Wednesday.

He defended the move by the Federal Open Market Committee on Wednesday to extend a program designed to lower long-term interest rates, a modest step in the face of slowing growth in the U.S. and abroad.

Bernanke said the extension of Operation Twist until the end of the year -- it was set to expire June 30 -- is a “substantive step,” and stressed that the Fed was not quite ready to act more boldly.

“We’re prepared to do more,” he said. “We have to get further information about the state of the economy and what’s happening in Europe.”

The burgeoning European debt crisis was a key factor in Fed officials lowering their forecasts for economic growth and unemployment, Bernanke said. He called Europe’s problems “a drag on the U.S. recovery.”

European leaders are the “first line” in dealing with the problems there, Bernanke said, echoing the White House view. But he said the Fed would consider a new round of stimulative bond buying -- known as quantitative easing -- if necessary.

Such a move would be controversial amid strong criticism of the previous two rounds of bond buying, and Bernanke said it was not to be “launched lightly.” But despite the criticism in an election year, the Fed was ready to act despite any political backlash, Bernanke said.

“The Federal Reserve is nonpartisan,” he said. “We are very serious about making our decisions on purely economic grounds, and we will continue to do that.”

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