Tuesday, October 2, 2012
Chairman Ben Bernanke offered a wide-ranging defense Monday of the Federal Reserve’s bold policies to stimulate the still-weak economy.
The Fed needs to drive down long-term 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 unemployment rate is 8.1 percent.
Low rates could also help shrink the federal budget deficit by easing the government’s borrowing costs and generating tax revenue from stronger growth, Bernanke argued.
The chairman cautioned Congress against adopting a law that would allow it to review the Fed’s interest-rate policy discussions. The House has passed legislation to broaden Congress’ investigative authority over the Fed and allow a review of its interest-rate policymaking. The Senate hasn’t adopted the bill.
Bernanke warned that such a step would improperly inject political pressure into the Fed’s private deliberations and affect the officials’ decisions.
His speech follows the Fed’s decision at its Sept. 12-13 meeting to launch a new mortgage-bond buying program. The goal is to try to drive low mortgage rates even lower to encourage home buying. Increased home sales could help spur hiring and accelerate economic growth.
The average rate on a 30-year fixed-rate mortgage is already 3.4 percent, a record low. But Bernanke thinks home loan rates could fall further, in part because long-term Treasury yields are much lower: The rate on the 10-year Treasury is just 1.62 percent.
After its September meeting, the Fed said it would keep buying the bonds until the job market showed substantial improvement. It also decided to keep its benchmark short-term rate near zero through at least mid-2015.
Full article: http://washington.cb … -policy-discussions/