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Bernanke defends policy actions
 Fed Chairman Ben Bernanke said policymakers have the tools they need to pull back on certain monetary support actions when needed. |
Feb. 27, 2013 – Federal Reserve Chairman Ben Bernanke, in testimony Tuesday for the Senate Banking Committee, offered a staunch defense of the Fed's bond-buying policy, saying its benefits clearly exceed possible costs.
Delivering the Fed's semiannual monetary policy report, Bernanke said Fed policymakers are aware of potential risks from their extraordinary support for the economy. He said the Fed has all the tools it needs to retreat from its monetary support in a timely fashion.
Currently, the Fed is keeping the federal funds rate target at a range of 0 to 0.25 percent as long as the unemployment rate is above 6.5 percent, near-term inflation remains at or below 2.5 percent and long-term inflation expectations continue to be well-anchored. It is also continuing to purchase mortgage-backed securities at a pace of $40 billion a month and longer-term Treasury securities at a pace of $45 billion per month, as well as reinvesting principle payments and rolling over maturing Treasury securities.
In Tuesday's testimony, Bernanke said:
- Congress needs to act to avoid the sharp sequester spending cuts set to go into effect Friday. He said these cuts, combined with earlier tax increases, could create a "significant headwind" for the economic recovery.
- The "essentially flat" level of fourth-quarter economic growth "does not appear to reflect a stalling-out of the recovery." Recent data "suggests that economic growth has picked up again this year."
- Labor market conditions have been "improving gradually," but the job market "remains generally weak, with the unemployment rate well above its longer-run normal level."
- Overall inflation remains low despite the recent increase in gasoline prices.
Bernanke testifies on the Fed's monetary policy today before the House Financial Services Committee.
The Federal Open Market Committee, the Fed's monetary-policy-setting arm, is set to hold its next meeting March 19-20.