Federal Reserve Chairman Ben Bernanke said Thursday that the Fed must remain “exceptionally alert and flexible” in its monetary policy decisions, and warned that renewed turbulence in financial markets “partially reversed” improvements in September and October.

Bernanke’s comments echoed those in a speech delivered Wednesday by Fed Vice Chairman Donald Kohn, which led many investors to expect a reduction in short-term interest rates when the Fed’s Open Market Committee meets Dec. 11.

Speaking in Charlotte, N.C. — headquarters for three of the top 10 U.S. banks — Bernanke said a “fresh wave” of investor concern has contributed to a widening of risk spreads for many types of loans in recent weeks, including many unrelated to housing.

Continued credit losses and write-downs at financial institutions, prompted in many cases by credit-rating agencies’ downgrades of securities backed by residential mortgages, remain the focus of investors’ concerns, Bernanke said.

Falling stock prices, widening risk spreads, and increased short-term funding pressures have resulted in a further tightening in financial conditions, “which has the potential to impose additional restraint on activity in housing markets and in other credit-sensitive sectors,” Bernanke said. “Needless to say, the Federal Reserve is following the evolution of financial conditions carefully, with particular attention to the question of how strains in financial markets might affect the broader economy.”

Similar concerns prompted the Fed on Sept. 18 to slash 50 basis points off two key short-term rates: the federal funds and discount rate. The Fed made more restrained cuts on Oct. 31, lowering its target for the federal funds rate 25 basis points to 4.5 percent, and cutting the discount rate by the same amount, to 5 percent.

The discount rate is the rate the Fed charges for direct loans to banks, and the federal funds rate is the rate banks charge each other for overnight loans. The Federal Reserve sets a “target” for the federal funds rate, which it can influence by loosening or tightening the supply of money. Reducing short-term interest rates encourages borrowing and can stimulate economic growth, but can weaken the dollar and spur inflation.

Bernanke said Thursday that economic growth was “quite strong” leading up to the October meeting, but that the committee “took the view that tightening credit conditions — the product of ongoing stresses in financial markets — and some intensification of the correction in the housing sector were likely to restrain economic activity going forward.”

Since the meeting, incoming economic data have been mixed. While indicators of home sales and construction have continued to be weak, the labor market remained solid in October, adding 130,000 new jobs to keep unemployment at 4.7 percent.

Core inflation remains “moderate,” but rising oil and food prices will create additional inflationary pressures. “The effectiveness of monetary policy depends critically on maintaining the public’s confidence that inflation will be well-controlled,” Bernanke said.

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