Speaking to the Economic Club of Indiana, Mr. Bernanke explained and defended the Fed's role in responding to the financial crisis and subsequent recession with extraordinary policy actions. Noting the central bank's decision last month to begin a third-round of securities purchases and to extend its horizon for keeping interest rates low through mid-2015, Mr. Bernanke said economic growth has not been fast enough to bring down stubbornly high unemployment.
"The case seemed clear to most of my colleagues that we could do more to assist economic growth and the job market without compromising our goal of price stability," he said.
Mr. Bernanke was careful to note that the mid-2015 guidance does not mean the Fed expects the economy to struggle that long. Rather, central bank officials deem that an accommodative monetary policy stance will be appropriate "for a considerable time after the economy strengthens."
The Fed chief's remarks are unlikely to quell criticism from some lawmakers that the Fed's easing in recent years could cause problems. Republican presidential candidate Mitt Romney and other members of his party have said some of the central bank's efforts have been ineffective, and could lead to higher inflation down the road.
Mr. Bernanke sought to debunk two of the main criticisms the Fed has received: that low interest rates enable bad fiscal policy by making it cheap for the federal government to borrow, and that the Fed has "monetized the debt" by engaging in securities purchases and will eventually cause higher inflation.
"Using monetary policy to try to influence the political debate on the budget would be highly inappropriate," he said. "For what it's worth, I think the strategy would also likely be ineffective."
The securities purchased and held by the Fed in recent years are actually likely to earn some money on interest, he noted, making the odds good they will help reduce, rather than increase, the level of federal debt.
He also downplayed the possibility the Fed's policies will lead to a spike in inflation. "The Federal Reserve's price stability record is excellent," he said, pointing out that measures of public expectations for inflation remain quite stable.
"I'm confident that we have the necessary tools to withdraw policy accommodation when needed, and that we can do so in a way that allows us to shrink our balance sheet in a deliberate and orderly away," Mr. Bernanke said.
2012.10.01 19:30:18
