Bernanke says Fed stimulus still needed

Last Updated: Thursday, July 11, 2013 - 09:09

Washington: Federal Reserve Chairman Ben Bernanke has said that the Fed's easy-money policy is still necessary, because the jobs market remains weak and inflation remains too low for comfort.

Speaking in Cambridge, Massachusetts, Bernanke also warned that the full impact on the economy of steep government spending cuts initiated in March was yet to be seen, underscoring the need for more Fed support.

"Both the employment side and the inflation side are saying that we need to be more accommodating," he said yesterday, answering questions after a speech.

"Moreover, the other portion of macroeconomic policy, fiscal policy, is now actually quite restrictive.... Put that all together, I think you can only conclude that highly accommodative monetary policy for the foreseeable future is what's needed in the US economy."

Bernanke said that the 7.6 per cent unemployment rate, though far below its crisis peak, "if anything overstates the health of our labour markets."

He pointed to the low overall participation rate in the job market, four years after the country emerged from a deep recession, and the high rate of long-term unemployment.

Both are barriers to the economy pushing toward full employment, one of the Fed's two policy goals.

"So we're not there, obviously, on the maximum employment part of the mandate," he said.

On the other goal -- price stability -- inflation at the current one percent level is low, he said, and well below the Fed's two per cent target rate, and low enough to generate some worry about deflation.

"We expect inflation to come back up. But if that's not the case, I think we have to say that that would be a good reason to remain accommodative and try to achieve that objective."

Bernanke's comment threw cold water on the market reaction to the release yesterday of the minutes from the Fed's policy board meeting three weeks ago, which suggested the central bank was ready to begin quickly winding down its USD 85 billion a month bond-buying stimulus program.

Treasury bond prices had fallen, and yields surged, after the minutes showed around half of the policy board members wanted to fully end the quantitative-easing bond purchases this year -- as opposed to mid-2014, as Bernanke had said at the time of the meeting.


First Published: Thursday, July 11, 2013 - 09:09

More from zeenews

comments powered by Disqus