Bernanke Signals Continued Fed Support for Low Interest Rates

Ben Bernanke-FedsBy MARTIN CRUTSINGER

WASHINGTON (AP) - The Federal Reserve's low interest-rate policies are giving key support to an economy still burdened by high unemployment, Chairman Ben Bernanke told Congress on Tuesday. Bernanke signaled that the Fed's efforts to keep borrowing costs low will continue.

In a statement, Bernanke acknowledged that the Fed's aggressive program to buy $85 billion a month in Treasurys and mortgage bonds to keep rates low could eventually ignite inflation or unsettle investors. Several Fed policymakers said at their most recent meeting that the Fed might have to scale back its bond purchases because of those risks.

But Bernanke, delivering the Fed's semiannual report to Congress, said the risks remained contained for now.

On budget policy, Bernanke urged Congress to replace the automatic spending cuts due to start Friday with more gradual reductions in budget deficits in the short run.

Bernanke's testimony to the Senate Banking Committee is being watched by investors concerned about the doubts raised by some Fed officials about whether the bond purchases should continue. The bond purchases represent the third round of a program intended to strengthen sectors such as housing and autos through lower borrowing costs.

"Keeping longer-term interest rates low has helped spark recovery in the housing market and led to increased sales and production of automobiles and other durable goods," Bernanke said.

Bernanke addressed concerns that the Fed's purchases, which have pushed its balance sheet above $3 trillion, could trigger high inflation.

"Inflation is currently subdued and inflation expectations appear well-anchored," he said. "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 over the past six months, the economy has grown moderately but unevenly. He said the pause in growth seen in the final three months of 2012 "does not appear to be a stalling-out of the recovery." He said growth appears to have picked up in the past two months.

Shortly before Bernanke spoke, several reports pointed to surprising economic strength: Americans' confidence in the economy rebounded this month, new-home sales jumped in January to the highest level since 2008, home prices rose at a healthy pace in December compared with a year ago and profits of U.S. banks jumped last quarter to the highest level in six years.

On the battle in Washington over how to restrain budget deficits, Bernanke said it's important not to cut the deficit too much while economic growth remains fragile. He noted that the Congressional Budget Office estimates that the automatic spending cuts that take effect Friday would trim growth by 0.6 percentage point this year.

"Congress and the administration should consider replacing the sharp, front-loaded spending cuts required by the sequestration with policies that reduce the federal deficit more gradually in the near term but more substantially in the longer run," Bernanke said.

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jsimons4109

Time to stock on food, water, guns and ammo. The world according to Ben is about to implode.

February 27 2013 at 1:49 PM Report abuse rate up rate down Reply
moretrorun

Same ol' hot air. In the meantime, tax revenues are less because interest income is less, seniors liquidate retirement savings because those savings aren't earning interest, corporations can't hire because reserves are not earning interest, insurance companies raise rates for the same reason. No one benefits except the world's largest borrower, the US of A. This is a last ditch effort to get the budget and economy in a healthy range. But as a consequence, if interest rates increase to previous levels, the government will lose a lot of money on those bonds! They'll dump those bonds back on the market before that happens. Then, the Feds will have another excuse to do something silly. Bernanke's policies are not good.

February 27 2013 at 11:03 AM Report abuse rate up rate down Reply
jasherrin

Cmon !Enough !We are just giving money to banks that are making Profits !What about all mt CD's that are making crap at my bank and all us LITTLE people !Stop helping the banks out!NOW!!

February 27 2013 at 10:45 AM Report abuse rate up rate down Reply
Ray

Bernanke will be out of his job before the country experiences hyper inflation from his monetary policies. He right about 1 thing. Quick abrupt spending cuts have to be gradually reduced but the Fed Government raked in 2 to 3 trillion per year. 85 billion is a drop in the bucket. The only thing Obama does is use scare tactics to attempt to get his support. He is flexible where we cut and can prioritize the cuts. Our government wastes more than this every year.

February 27 2013 at 10:20 AM Report abuse -1 rate up rate down Reply
1 reply to Ray's comment
theycallmeroy3

Bernanke used some good scare tactics. Nothing like telling a group of narcissits that they're morons to get them to move. Which is what he did.

February 27 2013 at 10:40 AM Report abuse rate up rate down Reply
old timer

we owe in trillions what number comes afterr trilions zillion ?

February 27 2013 at 10:00 AM Report abuse rate up rate down Reply
1 reply to old timer's comment
Terry

The next step up is 'Quadrillion.' For those counting, that would be 15 zeroes.

February 27 2013 at 12:50 PM Report abuse rate up rate down Reply
epeter6603

This country will implode from borrowing once interest rates go up to what they should be.

February 27 2013 at 9:25 AM Report abuse rate up rate down Reply
.kowalski440mag

Didn't know the US Constitution gave the right to the fed chairman to borrow money. I thought that was congress's forte. I'd also like to know where the $85B to buy additional debt is coming from and will that additional debt add to the national debt. And finally, why should a 'slow approach' be used at the federal level to cut spending? States and local municipalities are making hard choices immediately in order to balance their sheets. Reforming appropriation polices, cutting bloated administrator wages and retirement packages, chopping waste, retiring older workers, terminating unnecessary workers and increasing efficiency can be done immediately with llittle damage to federal programs themselves.

February 27 2013 at 8:58 AM Report abuse rate up rate down Reply
Randy

audit the federal reserve. eliminate the IRS. Reduce government spending by 50% at all levels.

February 27 2013 at 8:17 AM Report abuse rate up rate down Reply
tracy

When are we gonna stop blaming everbody else other than ourselves people...I'm reading comments here and all you see is the right is complaining that the Libs are still blaming bush, the Libs are blaming the Bush selection of Bernanke, the conservatives are blaming Pelosi!!!! Get real, quit blaming others, and look in the mirror!!! IT'S YOUR FAULT OUR COUNTRY IS SCREWED UP!!! YOU'RE THE VOTER!!!! YOU'RE THE WEDGE BETWEEN THE RIGHT AND LEFT!!! POLITICIANS CAN'T GET ANYTHING DONE CAUSE THEY MIRROR YOU!!!! YOU ARE THE IDIOT!!! YOU'VE ALLOWED THEM TO DIVIDE YOU!!! KEEP UP THE IDIOCY WHILE THEY TAKE OVER OUR LAND OF LIBERTY!!!!

February 27 2013 at 7:55 AM Report abuse +1 rate up rate down Reply
newpaint01

any results for bank profits are skewed because they are still borrowing money off of us for .025%, which means we are still stimulating the banks and footing the bill for their profits, time to end this and start charging a reasonable rate for these loans and let them make or break it on their own, they raised all our rates and continue to seek ways to screw the consumer and yet we continue to allow it

February 27 2013 at 7:49 AM Report abuse +1 rate up rate down Reply