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Recession like car wreck, Bernanke says

| Friday, Jan. 17, 2014, 12:01 a.m.

WASHINGTON — In his final public appearance as chairman of the Federal Reserve, Ben Bernanke took a moment to reflect on the 2008 financial crisis and compared it to surviving a bad car crash.

During an interview on Thursday at the Brookings Institution, Bernanke recalled some “very intense periods” during the crisis, similar to trying to keep a car from going over a bridge after a collision.

The government had just taken over mortgage giants Fannie Mae and Freddie Mac. Lehman Brothers had collapsed. He recalled some sleepless nights working with others to try to contain the damage.

“If you're in a car wreck or something, you're mostly involved in trying to avoid going off the bridge. And then, later on, you say, ‘Oh my God!' ” Bernanke said.

Bernanke will leave the Fed on Jan. 31, having served eight years as chairman. His successor, Janet Yellen, will take over on Feb. 1.

In his appearance, Bernanke defended the Fed's efforts during the crisis, which included significant purchases of Treasury bonds to push long-term interest rates lower and forward guidance to investors about how long the Fed plans to keep short-term interest rates near zero.

Critics have warned that those efforts pose great risks for higher inflation or financial market turmoil.

But Bernanke says there has not been a problem with inflation, which is running well below the Fed's 2 percent target.

Should inflation start to be a problem as the economy starts growing at faster rates, the Fed “has all the tools we need to manage interest rates” to keep inflation from getting out of hand, he said.

“Inflation is just not really a significant risk” from the bond purchases, Bernanke said.

Bernanke said the central bank is aware of the potential threat to financial market stability from its substantial bond holdings and is monitoring markets closely to spot any signs of trouble. He said this threat was the one “we have spent the most time thinking about and trying to make sure that we can address” should the need arise.

But he said any concerns about financial stability did not outweigh the need to keep providing support to the economy.

The Fed announced last month that it would slightly reduce the size of its bond purchases in January from $85 billion per month to $75 billion. And it said it would likely make further reductions if the economy keeps improving.

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