ben s bernanke : developments in the financial markets testimony of mr ben s bernanke, chairman of the board of governors of the us federal reserve system, before the committee on banking, housing, and urban affairs, us senate, washington dc, 3 april 2008. * * * chairman dodd, senator shelby, and other members of the committee, i appreciate this opportunity to discuss current economic and financial conditions and the actions the federal reserve has taken to stabilize financial markets and the economy. although the situation has recently improved somewhat, financial markets remain under considerable stress. pressures in short - term bank funding markets, which had abated somewhat beginning late last year, have increased once again. many lenders have been reluctant to provide credit to counterparties, especially leveraged investors, and increased the amount of collateral they required to back short - term security financing agreements. to meet those demands, investors have reduced their leverage and liquidated holdings of securities, putting further downward pressure on security prices. credit availability has also been restricted because some large financial institutions, including some commercial and investment banks and the government - sponsored enterprises ( gses ), have reported substantial losses and writedowns, reducing their capital available to support increased lending. some key securitization markets, including those for nonconforming mortgages, continue to function poorly if at all. these developments in financial markets – which themselves reflect, in part, greater concerns about housing and the economic outlook more generally – have weighed on real economic activity. notably, in the housing market, sales of both new and existing homes have generally continued weak, partly as a result of the reduced availability of mortgage credit, and home prices have continued to fall. private payroll employment fell substantially in february, after two months of smaller job losses, with job cuts in construction and closely related industries accounting for a significant share of the decline. but the demand for labor has also moderated recently in other industries. overall, the near - term economic outlook has weakened relative to the projections released by the federal open market committee ( fomc ) at the end of january. inflation has also been a source of concern. we expect inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully. well - functioning financial markets are essential for the efficacy of monetary policy and, indeed, for economic growth and stability. consistent with its role as the nation's central bank, the federal reserve has taken a number of steps in recent weeks to improve

of our action, as with our other recent actions – including our provision of liquidity to financial firms and our reductions in the federal funds rate target – was, as best as possible, to improve the functioning of financial markets and to limit any adverse effects of financial turmoil on the broader economy. we will remain focused on those objectives. clearly, the u. s. economy is going through a very difficult period. but among the great strengths of our economy is its ability to adapt and to respond to diverse challenges. much necessary economic and financial adjustment has already taken place, and monetary and fiscal policies are in train that should support a return to growth in the second half of this year and next year. i remain confident in our economy's long - term prospects. thank you. i would be pleased to take your questions.