INSTANT VIEW: Bernanke: credit turmoil threatens economy

NEW YORK (Reuters) - The turmoil in credit markets poses a "significant threat" to an already slowing U.S. economy, Federal Reserve Chairman Ben Bernanke said on Wednesday, suggesting an openness to further interest-rate cuts.

KEY POINTS: * Bernanke said it will take some time to restore normal flows of credit. * He pledged that the U.S. central bank would continue to act aggressively to fight the crisis. * "By restricting flows of credit to households, businesses, and state and local governments, the turmoil in financial markets and the funding pressures on financial firms pose a significant threat to economic growth," Bernanke said.

COMMENTS:

KIM RUPERT, MANAGING DIRECTOR OF GLOBAL FIXED INCOME ANALYSIS, ACTION ECONOMICS, SAN FRANCISCO:

"(The speech) just seemed to be largely a discussion of what's happened and what the administration has done in terms of trying to resolve the crisis.

"There was only a little bit of mention of the economy but it was all pretty much stuff that we already knew.

"The economy remains fairly weak. The recovery isn't going to happen overnight. He has been seeing signs of weakness in spending, investment and employment, things we've already seen ourselves. And they continue to believe that the slowdown in the economy is going to ease price pressures.

"It didn't really give us any clues in terms what the Fed might be doing come Oct 29."

JOSEPH LAVORGNA, CHIEF U.S. ECONOMIST, DEUTSCHE BANK SECURITIES, NEW YORK:

"Bernanke's comment that even if markets stabilize, the economy won't recover right away and that it will take some time for the credit market to unfreeze suggests that Bernanke is getting progressively more cautious on the outlook and that there will be more rate cuts and that he will do everything possible to get the financial markets back to some sense of normalcy and to a recovery in economic activity which he believes is quite terrible at the moment. He's not talking about inflation. Obviously, the Fed and Treasury realize that they need to improve the health of the financial markets. You don't have a healthy economy without a healthy financial market. Economists are debating the extent to which the economy will suffer from the events to date. From that point of view, one has to be pretty negative about the second half of this year and also much of next year."

CARY LEAHEY, SENIOR MANAGING DIRECTOR, DECISION ECONOMICS, NEW YORK:

"He is basically doing a stand and be counted speech to an elite audience in New York where he is saying 'we will not stand down until the system is repaired' and 'we will use every resource to ease the crisis'. They clearly are doing just about that particularly given that he represents a conservative Republican appointee. Obviously the market would be interested to see if he gives any hints of further reductions in rates but we should remember that Bernanke had his best poker face on recently when he only mildly hinted at a rate cut and he had already approved one in conjunction with the international central banks last week. So I think the Fed could lower rates at any time, but Bernanke is not going to hint at that."

JOE SALUZZI, CO-MANAGER TRADING THEMIS TRADING, CHATHAM, NEW JERSEY:

"The stock market is so emotional and so fear based that anytime people hear a little headline like 'Bernanke says the economy is going to be slower and it's going to take a while for the credit markets to ease' they hit stocks. But that's a good headline. There's no news there. We know all that."

TONY CRESCENZI, CHIEF BOND MARKET STRATEGIST, MILLER, TABAK & CO., NEW YORK:

"Bernanke's comments in their entirety reinforce the sense that the Fed will lower interest rates when it meets again on October 29."

"Rate cut odds were buoyed by Bernanke's emphasis on the downside risks to growth and moderating inflation pressures."

MARKET REACTION: STOCKS: U.S. equity indexes touched session lows but then retraced some ground BONDS: Treasury debt prices hold steady near the unchanged mark on the day DOLLAR: U.S. dollar edges up versus the yen and euro