INSTANT VIEW: Bernanke warns U.S. economy under strain

NEW YORK (Reuters) - Federal Reserve Chairman Ben Bernanke warned on Monday that the U.S. economy remained under considerable strain and said that policy-makers must be ready to take decisive action to protect jobs and growth.

KEY POINTS: * "Our nation's economic policy must vigorously address the substantial risks to financial stability and economic growth that we face," Bernanke told the Greater Austin Chamber of Commerce in prepared remarks. * Bernanke said that further interest rate cuts beneath the Fed's current target of 1 percent for its benchmark overnight funds rate were "certainly feasible", but suggested the Fed would also use other unconventional measures to aid growth. * "Although conventional interest rate policy is constrained by the fact that nominal interest rates cannot fall below zero, the second arrow in the Federal Reserve's quiver -- the provision of liquidity -- remains effective," he said.

COMMENTS:

TONY CRESCENZI, CHIEF BOND MARKET STRATEGIST, MILLER, TABAK

& CO., NEW YORK:

"I noted this morning ("New Fed programs still moving rates") Bernanke's November 2002 speech wherein he said that the Fed could, among other things, target long-term interest rates, so it is not a complete surprise that he would hint at the potential for such a policy response. Nevertheless, many will be surprised to learn that the Fed is so close to considering such an approach.

"Bernanke's mention of the strategy in his speech today has pushed the yield on 10-year Treasuries down an additional 10 basis points on the day."

STEPHEN STANLEY, CHIEF ECONOMIST, RBS GREENWICH CAPITAL

MARKETS, GREENWICH, CONNECTICUT:

"It is becoming increasingly clear that we are somewhere along the path toward quantitative easing. The Fed believes that we are almost there, and most people in the markets would probably argue that we are already there and have been there for a month or two. There is definitely an acknowledgment here that while we could lower rates a little bit more, the fact is that if we have to do more, most of it is going to come in the form of something other than just straight interest rate cuts."

BRIAN DOLAN, CHIEF CURRENCY STRATEGIST, FOREX.COM, BEDMINSTER,

NEW JERSEY:

"Bernanke's comments acknowledges a weak economic environment and outlook but also holds out some minor positives. He clearly signals that lower rates are "certainly feasible" and that the Fed might buy Treasuries as an option. He also noted that monetary and fiscal stimulus will help an eventual recovery. While not overly optimistic, it's also not quite as foreboding as it could have been. Stocks have not tanked on his initial comments and that's mildly encouraging overall, suggesting most of the negativity has already been priced in."

DUSTIN REID, CURRENCY STRATEGIST, RBS GLOBAL BANKING &

MARKETS:

"The main headline is his saying that policy options could include buying long-term Treasuries. Typically we've seen safe-haven flows into Treasuries also lifting the dollar, so it's possible the dollar will get a bit of a bid out of this, but currency trading is going to be choppy. We are moving into the last month of the year, which is traditionally not a good time for the dollar against the euro, sterling and yen. So we could see some dollar weakness but it would probably be a temporary blip in a broader trend that would see more dollar buying next year."

MARKET REACTION: STOCKS: U.S. equity indexes extend losses after Bernanke says economy remains under considerable stress. BONDS: Treasury debt prices hold gains. DOLLAR: Dollar pares gains versus euro.