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Bernanke makes strong defense of Fed rate policies

PTI Washington | Updated on March 12, 2018 Published on October 02, 2012

Chairman Ben Bernanke offered a sharp defense today of the Federal Reserve’s bold policies to stimulate the weak US economy, while cautioning Congress to respect its private discussions.

The Central Bank needs to drive down borrowing rates because the economy isn’t growing fast enough to reduce high unemployment, Bernanke said in a speech to the Economic Club of Indiana. The nation’s unemployment rate is 8.1 per cent.

Bernanke spoke two days before President Barack Obama and Republican challenger Mitt Romney will hold a debate in which the economy is a central theme. And his speech comes four days before the Government releases its September job figures.

Economists expect just modest hiring gains and continued unemployment above 8 per cent.

Low rates could help lower the federal budget deficit by reducing the Government’s borrowing costs and generating more tax revenue through stronger growth, Bernanke said.

Bernanke also cautioned Congress against changing the law so it could review the Fed’s interest-rate policy discussions.

Such a step would improperly inject political pressure into those talks and make Fed policymakers less likely to act, Bernanke warned.

The speech came just weeks after the Fed voted to purchase mortgage bonds to help boost the housing market. The Fed left the program open ended, saying that it would keep buying the bonds until the job market showed substantial improvement.

The Fed also said at the September meeting it plans to keep its benchmark short-term interest rate near zero through at least mid-2015.

The US Economy is struggling more than three years after the Great Recession ended. High unemployment and weak pay growth has made consumers more cautious about spending, which has hurt manufacturing and slowed broader growth.

The Fed is hoping to make home buying more attractive to help the broader economy. When home prices rise, people typically feel wealthier and spend more. Consumer spending drives nearly 70 per cent of economic activity.

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Published on October 02, 2012
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