| USWorld

Larger text Larger text Smaller text Smaller text | Order Photo Reprints

Bernanke defends need for low rates

Email Newsletters

Click here to sign up for one of our email newsletters.

Daily Photo Galleries

By The Associated Press
Saturday, March 2, 2013, 6:45 p.m.

WASHINGTON — Chairman Ben Bernanke is standing by the Federal Reserve's low-interest-rate policies, cautioning that any move to raise rates prematurely could derail a still-modest economic recovery.

Bernanke also sought to calm fears that super-low rates risk igniting inflation or rattling investors, during a speech late Friday in San Francisco to an economic conference sponsored by the San Francisco Federal Reserve Bank.

The central bank's low-rate policies are intended to encourage borrowing and spending to boost the economy. Higher rates would make borrowing more expensive.

Bernanke said the Fed's policies mirror what other central banks around the world are doing.

“Long-term interest rates in the major industrial countries are low for a good reason: Inflation is low and stable and, given expectations of weak growth, expected real short rates are low,” he said.

“Premature rate increases would carry a high risk of short-circuiting the recovery, possibly leading — ironically enough — to an even longer period of low long-term rates,” he said.

Critics, including some Fed regional bank presidents, have expressed concerns that the Fed may be raising the risk of inflation through its purchases of Treasury bonds and mortgage-backed securities.

As he did in his appearance before House and Senate committees this week, Bernanke sought to provide reassurance that the central bank is closely monitoring developments in financial markets to guard against such risks.

He said 2010 financial regulatory overhaul has forced banks to boost the required capital on hand to cushion against losses. The Fed also conducts annual stress tests to make sure that the nation's largest financial institutions have sufficient resources to survive adverse economic conditions, he said.

“We pay special attention to developments at the largest, most complex financial firms, making use of information gathered in our supervision of the institutions,” Bernanke said.

During a question period after his speech, Bernanke was asked what he believed were the most significant lessons learned from the financial crisis. Prior to serving as Fed chairman, Bernanke had been a college professor at Princeton who researched mistakes made by the Federal Reserve during the Great Depression.

Bernanke said there was a need for better oversight of the financial system. And he noted that assets such as housing can quickly become significantly overpriced. But he said in many ways, the 2008 crisis had all the elements of a typical bank run.

“It was analogous to things that happened in the 19th century,” said Bernanke. “It is just that it is a much more complex framework” today.

Subscribe today! Click here for our subscription offers.



Show commenting policy

Most-Read Nation

  1. Football game in St. Louis halted by gunshots
  2. Apartment blast kills 1 in Brooklyn
  3. Double whammy for dinosaurs: Death from above, below
  4. Navy intelligence official indicted on charges of theft, conspiracy
  5. Another round of divisive cases awaits Supreme Court
  6. Oregon college gunman’s victims walked varied paths
  7. Closure of ID offices in Alabama riles Democrats
  8. As GOP prepares to elect new House leadership, no end to infighting in sight
  9. Survivor: Oregon college gunman spared 1 to give police a message
  10. California vineyards skip irrigation amid drought
  11. Ohio’s interpretation of Common Core test results threatens national comparison goals