US Federal Reserve Chairman Ben Bernanke has signalled that he is ready to lower interest rates.
It would be a dramatic policy shift – and comes after he warned of a worsening economic outlook and the “historic” dimensions of the global financial crisis.
The central bank also plans to begin buying commercial paper in a bid to restore credit flow. Its a form of short-term debt vital to many businesses.
Bernanke said: “The combination of the incoming data and recent financial developments suggests that the outlook for economic growth has worsened and that the downside risks to growth have increased. At the same time, the outlook for inflation has improved somewhat, though it remains uncertain. In light of these developments, the Federal Reserve will need to consider whether the current stance of policy remains appropriate.”
Meanwhile, EU finance ministers have said they will take all necessary measures to protect the banking system and deposits of individual savers. To that end they have raised the amount that is guaranteed in the event of a bank failure.