Critical Times

Reporter: Peter Ryan

TONY EASTLEY: There are new warnings from the world’s most powerful central banker that the housing slump in the United States is far from over.

The Chairman of the US Federal Reserve, Ben Bernanke, says it’s too early to determine the impact the continuing subprime mortgage crisis will have on consumer and business spending.

Ben Bernanke’s pessimistic outlook, and record high oil prices, saw Wall Street close lower for the second day in a row.

Peter Ryan is our Business Editor who’s been following the story.

Good morning Peter is Ben Bernanke saying this, that despite the recent recovery on global sharemarkets, that a recession remains a possibility in the US?

PETER RYAN: Well, Tony he certainly warning that the risks of more volatility ahead remain and of course, his comments come after yesterdays warning from the world’s biggest bank, Citigroup, that they’re will be more subprime mortgage defaults next year.

As usual every single one of Ben Bernanke’s words were scrutinised when he spoke in New York and the comments are seen as the most extensive since the credit crunch caused by the subprime crisis rocked Wall Street and global markets in August.

What he’s saying is that the central bank’s decision to cut US official interest rates by half a per cent last month were showing signs of success in restoring confidence and stabilising the economy but he appears to winding back expectations of another cut when the Fed meets in a fortnight’s time and he said the housing slump would continue to drag on economic growth into next year.

BEN BERNANKE: Although the Federal Reserve can seek to provide a more stable economic background that will benefit both investors and non-investors, the truth is that it can hardly insulate investors from risk even if it wished to do so.

Developments over the past few months reinforce this point. Those who made bad investment decisions lost money. In particular, investors in subprime mortgages have sustained significant losses and many of the mortgage companies that made those loans have failed.

TONY EASTLEY: The Chairman of the US Federal Reserve there, Ben Bernanke. Peter Ryan, it’s not just the housing slump because the price of oil is playing into this as well.

PETER RYAN: There are signs that the price of oil is now pushing US$90 a barrel. Today it’s been just over US$88 a barrel. Well up on yesterday now hovering around $87.50.

That makes it a 45 per cent increase this year alone and although that spike has been driven to speculators, analysts believe the fundamentals of supply and demand could see a price of US$100 a barrel by the end of the year.

TONY EASTLEY: Not great news. Business editor Peter Ryan.