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Last Updated: Friday, 31 August 2007, 15:22 GMT 16:22 UK
Highlights of Ben Bernanke's speech
Federal Reserve Chairman Ben Bernanke

Federal Reserve chairman Ben Bernanke has given his assessment of the state of the housing market and the impact it has been having on the US economy.

The speech is being pored over for clues about whether there will be a cut in US interest rates at the Federal Reserve's rate-setters' meeting on 18 September.

Here are a selection of quotes from his speech:

It is not the responsibility of the Federal Reserve - nor would it be appropriate - to protect lenders and investors from the consequences of their financial decisions. But developments in financial markets can have broad economic effects felt by many outside the markets, and the Federal Reserve must take those effects into account when determining policy.

The Committee continues to monitor the situation and will act as needed to limit the adverse effects on the broader economy that may arise from the disruptions in financial markets.

The financial turbulence we have seen had its immediate origins in the problems in the sub-prime mortgage market, but the effects have been felt in the broader mortgage market and in financial markets more generally, with potential consequences for the performance of the overall economy.

The cutback in residential construction has directly reduced the annual rate of US economic growth about three quarters of a percentage point on average over the past year and a half.

Obviously, if current conditions persist in mortgage markets, the demand for homes could weaken further, with possible implications for the broader economy. We are following these developments closely.

The adjustable-rate sub-prime mortgages originated in late 2005 and in 2006 have performed the worst, in part because of slippage in underwriting standards, reflected for example in high loan-to-value ratios and incomplete documentation.

With many of these (recent sub-prime) borrowers facing their first interest rate resets in coming quarters, and with softness in house prices expected to continue to impede refinancing, delinquencies among this class of mortgages are likely to rise further.

Some increase in the premiums that investors require to take risk is probably a healthy development on the whole, as these premiums have been exceptionally low for some time.

The Federal Reserve stands ready to take additional actions as needed to provide liquidity and promote the orderly functioning of markets.




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