Bernanke in Front of Congress
The long awaited testimony of Fed Chairman Ben Bernanke began today in front of the House Financial Services Committee in Washington. Bernanke had plenty to say to congress regarding the state of the US economy. Bernanke said the US economy is in a “nascent” recovery which requires keeping benchmark rates low for an ‘extended period. This is Bernanke’s first appearance before congress since his contentious confirmation hearings in January. Bernanke painted a relatively sobering picture of the US economy which is still mired in recession despite recent signs of recovery. During the past two years the US has lost approximately 8.4 million jobs during the most severe financial crisis since the great depression of the 1930’s. Bernanke told congress that job losses are slowing but noted the recession’s effects on American workers.
Rates to Remain Low
Bernanke said that the current state of the US economy requires rates be kept low to stimulate demand by consumers and businesses. Bernanke stated, “A sustained recovery will depend on continued growth in private-sector final demand for goods and services. Private final demand does seem to be growing at a moderate pace.” Bernanke said that dismal US labor markets and low inflation will allow the Federal Open Market Committee to keep rates low but said the Fed will have to tighten monetary policy “at some point.” Bernanke told the committee, “The FOMC continues to anticipate that economic conditions — including low rates of resource utilization, subdued inflation trends, and stable inflation expectations — are likely to warrant exceptionally low levels of the federal funds rate for an extended period.” Bernanke also said that the FOMC id prepared to support the economy with stimulus measures for as long as necessary.
Bernanke Cites Weak US Economic Data
Last week the Fed surprised financial and currency markets by raising the discount rate it charges banks for emergency loans. Many investors feared that the Fed was about to raise borrowing costs despite the fact that the Fed did not raise the federal funds rate. The Fed portrayed last week’s move as “normalization” and said last week’s rate hike will not change the Fed’s outlook on the economy or change monetary policy. Bernanke cited the weak US labor market as one of the factors motivating the Fed to keep rates low. Bernanke stated, “Notwithstanding these positive signs, the job market remains quite weak, with the unemployment rate near 10 percent and job openings scarce.” Bernanke said the Fed possesses a wide range of tools to withdraw emergency measures when the ‘time is right.’
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