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Bernanke: Economic weakness to continue
(Agencies)
Updated: 2008-12-02 10:25

A trader works on the floor of the New York Stock Exchange, December 1, 2008. US stocks stayed near session lows on Monday after Federal Reserve Chairman Ben Bernanke said that the US economy remained under considerable stress. [Agencies]

In fact, Bernanke said that cutting rates may not be the Fed's most effective method for tackling the financial crisis.

"Although conventional interest rate policy is constrained ... the second arrow in the Federal Reserve's quiver, the provision of liquidity, remains effective," he said.

The Fed cut its key funds rate to an all-time low of 1% in October in response to deterioration in the global financial system. Rate cuts tend to drive up inflation, but falling prices have given the Federal Reserve more wiggle room to lower interest rates. Core inflation is now at its lowest point since October 2007, according to a recent Department of Labor report.

Bernanke said that while further reductions in the Fed's benchmark rate are "certainly feasible," the central bank doesn't have much left to trim.

Still, many economists expect the Fed to cut interest rates again when it meets Dec. 15-16.