Bernanke Signals Fed Will Keep Stimulus in Place

Federal Reserve Chairman Ben Bernanke
Paul Beaty/APFederal Reserve Chairman Ben Bernanke.

WASHINGTON -- Federal Reserve Chairman Ben Bernanke is telling Congress Wednesday that the U.S. job market remains weak and that it is too soon for the Federal Reserve to end its extraordinary stimulus programs.

Reducing the Fed's efforts to keep borrowing rates low would "carry a substantial risk of slowing or ending the economic recovery," Bernanke said in testimony to the Joint Economic Committee.

Bernanke noted that the economy is growing moderately this year and unemployment has fallen to a four-year low of 7.5 percent. Still, unemployment remains well above levels consistent with healthy economies. And Bernanke said higher taxes and deep federal spending cuts are expected to slow economic growth this year.

His comments about the many risks facing the economy, along with the benefits gained so far from the Fed's stimulus, suggest the Fed is not ready to taper bond purchases that have helped lower long-term interest rates to encourage more borrowing and spending.

Stocks surged after Bernanke's comments. The Dow Jones industrial average (^DJI) was up just 40 points before his comments were released at 10 a.m. EDT. Minutes later, the Dow was up 125 points.

The Fed has said it plans to continue its $85 billion-a-month in Treasury and mortgage bond purchases until the job market improves substantially. And after its April 30-May 1 meeting, the Fed said it could increase or decrease the pace depending on how the job market and inflation fare.

Investors have been closely scrutinizing policymakers' comments since then for clues about the pace of the bond purchases.

Bernanke has had solid support for the bond purchases among the voting members of the Fed's interest-rate setting committee. At each of the Fed's three policy meetings this year, the committee has approved the purchases 11-1.

In recent months, the job market and the broader economy have shown renewed vigor. The economy has added an average of 208,000 jobs a month since November. That's up from only 138,000 a month in the previous six months.

The economy has benefited from a resurgent housing market, rising consumer confidence and the Fed's stimulus actions, which have helped ignite a stock market rally. The Standard & Poor's 500 (^GSPC) stock index has jumped 17 percent this year to a record high. Higher stock prices tend to make many people feel wealthier and more inclined to spend.

Those gains, in part, are why critics of the bond purchases, including some Fed regional bank presidents, have questioned the need to continue them at their current pace. They argue that keeping interest rates too low for too long could send inflation surging or inflate dangerous bubbles in assets such as stocks or real estate. Such a bubble could burst with the same destabilizing effects that the housing bust caused.

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July 14 2013 at 4:25 PM Report abuse rate up rate down Reply

When the bubble he has created with our money pops, the great depression will seem like a dream vacation. Best be prepared to feed and protect yourselves because the zombies on welfare and food stamps are going to get desperate quickly when the system no longer can feed them. This is what our current future will be, like it or not.

May 22 2013 at 4:10 PM Report abuse +4 rate up rate down Reply

How doe's he look people in the eye and say there is no inflation. All helicopter Ben cares about is Big Banks and his Wall Street buddies. He could care less about the retires or the honest responsible people. The nsooner he leaves the better off we'll be.

May 22 2013 at 1:23 PM Report abuse +4 rate up rate down Reply

anyway,what's WITH this guy and that grunge "look" ?
can't afford a comb,razor and trimmer ?

his political consultant told him it's better for the image to look unkempt as in being too busy to be concerned with appearance ?

May 22 2013 at 12:12 PM Report abuse +1 rate up rate down Reply

so,prOfessUH ?
where does bernan_kee get these millions monthly from ?
and who gave him the right to freely donate those millions to fraud street ?
we,the people ?

somehow i don't think so........

May 22 2013 at 11:50 AM Report abuse +3 rate up rate down Reply