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Bernanke Put to Test as U.S. Economy Struggles

Federal Reserve Chairman Ben Bernanke has called for government action to revive the slowing U.S. economy, in a key test of his tenure as the head of the central bank. Two business reporters consider how Bernanke is responding to the economic downturn and how his background has prepared him to be a key decision maker.

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  • JIM LEHRER:

    Next, a look at how Federal Reserve Chairman Ben Bernanke is responding to the troubled economy. Ray Suarez has our story.

  • RAY SUAREZ:

    The steep drop in securities markets around the globe today reflected growing worry about the U.S. economy and the chances of a recession.

    Across Europe, in Asia and South America, stock indices were down by multiple percentage points. Even with U.S. markets closed for the King holiday, Dow Jones futures were down more than 500 points.

    While the Dow Jones itself may not drop when the market opens tomorrow, it and other indices have been falling steadily since the start of the year. The Dow is down almost 9 percent in January alone, after a string of bad signs.

    The dollar's value is dropping; inflation is up; job numbers are weak; and home values are falling, as the impact of the subprime lending crisis is slowly spreading.

    It all adds up to the first major test for the Federal Reserve chief, Ben Bernanke, now two years into the job. At first, Bernanke said, he thought damage would be limited to the housing market, as he said in Chicago last May. "We do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system."

    Since then, Bernanke has made several moves to spark the economy. He's repeatedly lowered interest rates, and the Fed has injected more cash into the banking system to spur lending.

    Then, on Capitol Hill last week, he gave his blessing to the idea of a stimulus package.

  • BEN BERNANKE, Federal Reserve Chairman:

    A fiscal stimulus package should be implemented quickly and structured so that its effects on aggregate spending are felt as much as possible within the next 12 months or so. Stimulus that comes too late will not help support economic activity in the near term, and it could be actively destabilizing if it comes at a time when growth is already improving.

  • RAY SUAREZ:

    Wall Street will be watching for Bernanke's latest moves next week, when the Federal Reserve board meets and is expected to lower interest rates again.