The credit crisis has created the most challenging economic and monetary policy environment in recent memory, the chairman of the US Federal Reserve has admitted.
Ben Bernanke presented a downbeat assessment of the economic effects of the unfolding crisis when he addressed the US central bank's annual symposiumin Jackson Hole, Wyoming.
And he warned Wall St not to expect the Fed to continually come to its rescue, as it had to when the investment bank Bear Stearns teetered on the brink of collapse in March.
Bernanke called for sweeping new powers for the Fed to counter risks to the financial system, plus new regulations to tame the world of derivatives trading, whose opacity has contributed to a climate of fear and uncertainty since the credit crisis exploded a little over a year ago.
At the 2007 symposium, the Fed had still to respond to the crisis by cutting interest rates, much to Wall St's chagrin, and Bernanke said then that the US economy was still growing strongly, even if the risks were rising.
Yesterday, after a year where the markets failed to stabilise, he was taking a markedly different tone.
"Although we have seen improved functioning in some markets, the financial storm that reached gale force some weeks before our last meeting here in Jackson Hole has not yet subsided, and its effects on the broader economy are becoming apparent in the form of softening economic activity and rising unemployment.
"Add to this mix a jump in inflation, in part the product of a global commodity boom, and the result has been one of the most challenging economic and policy environments in memory."
The Fed chairman's speech was interpreted as showing its Federal Open Market Committee had little inclination to raise interest rates any time soon. Bernanke sounded more confident than ever that present high rates of inflation will subside, thanks to recent falls in commodities prices and a rebound by the dollar.
"If not reversed, these developments, together with a pace of growth that is likely to fall short of potential for a time, should lead inflation to moderate later this year and next," he said.
