Fed Signals Tougher Response to Faltering Expansion

Jan. 14 (Bloomberg) -- Federal Reserve officials, including Chairman Ben S. Bernanke, are signaling a more aggressive response to the increasing risk of recession.

Bernanke testifies to Congress on Jan. 17, two days after a government report that economists predict will show retail sales stalled last month after a gain of 1.2 percent in November.

The Fed chief and Governor Frederic Mishkin unveiled the new strategy last week, when they said in speeches that they favor greater ``insurance'' against the prospect of an economic downturn. That's a break from basing policy on central bank forecasts, which anticipate a continued expansion.

``They have been forced into a more aggressive stance simply because the market isn't paying attention to their medium-term forecast,'' said Drew Matus, senior economist at Lehman Brothers Holdings Inc. in New York. ``The market doesn't buy their glass-is-quarter-full view of the economy.''

Donald Kohn, the Fed's vice chairman, said in Jan. 5 speech that the officials decided to communicate more often with the public after the financial-market ``turmoil'' that began in August.

``We have tried to provide more information than usual to reduce uncertainty and clarify our intentions,'' Kohn said in a speech in New Orleans.
exceptionally alert and flexible.''