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Bernanke signals support for keeping interest rates low

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By The Associated Press
Tuesday, Feb. 26, 2013, 6:45 p.m.
 

WASHINGTON — Ben Bernanke sent a message on Tuesday to Congress: The Federal Reserve's low-interest-rate policies are giving critical support to an economy that's still burdened by high unemployment.

The Fed chairman acknowledged the risks of keeping rates low indefinitely, but he expressed confidence that such risks pose little threat now.

Delivering the Fed's semiannual monetary report to Congress, Bernanke sought to minimize concerns that the central bank's easy-money policies might cause runaway inflation later or dangerous bubbles in assets such as stocks. He sought to reassure sometimes-skeptical senators that the Fed is monitoring potential threats and can defuse them before they hurt the economy.

Several Fed policymakers said during their most recent meeting that the Fed might have to scale back its bond purchases because of the risks. Those comments, contained in minutes released last week, fanned speculation that the Fed might soon allow long-term borrowing rates to rise. Stock prices fell sharply.

But Bernanke gave no signal that the Fed might shift away from its low-interest-rate policy. He said its aggressive program to buy $85 billion a month in Treasurys and mortgage bonds had kept borrowing costs low. And that, in turn, has helped strengthen sectors such as housing and autos, he said.

Addressing concerns that the bond purchases, which have pushed the Fed's balance sheet to a record high above $3 trillion, could trigger high inflation, Bernanke said:

“Inflation is currently subdued and inflation expectations appear well-anchored. We do not see the potential costs of the increased risk-taking in some financial markets as outweighing the benefits of promoting a stronger economic recovery and more-rapid job creation.”

Bernanke said that during the past six months, the economy has grown moderately but unevenly. He noted that the pause in growth in the final three months of 2012 “does not appear to be a stalling-out of the recovery,” and growth appears to have picked up in the past two months.

 

 
 


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