Fed sees need for stimulus to remain
Source: Bloomberg News |
June 9, 2011, Thursday
|
Print Edition
Print Edition
FEDERAL Reserve Chairman Ben S. Bernanke said the "frustratingly slow" United States recovery warrants sustained monetary stimulus while predicting that growth will gain speed in the second half of the year.
"The economy is still producing at levels well below its potential; consequently, accommodative monetary policies are still needed," Bernanke said on Tuesday in a speech in Atlanta. At the same time, the Fed "will take whatever actions are necessary to keep inflation well controlled," he said.
Bernanke said consumer spending is being held back by an unemployment rate that rose to 9.1 percent last month, a drop in home values and tight credit. He said growth is likely to pick up as fuel prices moderate and disruptions of parts supplies ease as factories in Japan recover from an earthquake and tsunami.
"Overall, the economic recovery appears to be continuing at a moderate pace, albeit at a rate that is both uneven across sectors and frustratingly slow from the perspective of millions of unemployed and underemployed workers," Bernanke said.
Treasury two-year note yields dropped two basis points, or 0.02 percentage point, to 0.4 percent on Tuesday in New York, the lowest level this year. The Standard & Poor's 500 Index fell 0.1 percent to 1,284.94 after rallying as much as 0.8 percent.
Bernanke has spurred growth by holding the main interest rate near zero since December 2008 and expanding the Fed's balance sheet to US$2.79 trillion.
The Federal Open Market Committee said in April it will complete a program to purchase US$600 billion in bonds this month, a policy known as quantitative easing, and affirmed a pledge to keep interest rates low for an "extended period."
William C. Dudley, president of the Federal Reserve Bank of New York and vice chairman of the FOMC, said in a separate speech that "the recovery remains distinctly subpar in spite of aggressive monetary and fiscal stimulus."
Bernanke and Dudley both said lawmakers should rein in budget deficits to ensure long-term growth without cutting back so quickly as to choke off the recovery.
"Establishing a credible plan for reducing future deficits now would not only enhance economic performance in the long run, but could also yield near-term benefits by leading to lower long-term interest rates," Bernanke said.
On the other hand, "A sharp fiscal consolidation focused on the very near term could be self-defeating," he said.
While a recent increase in inflation is a "concern," Bernanke said he doesn't see "much evidence that inflation is becoming broad-based or ingrained in our economy."
Still, "the longer-run health of the economy requires that the Federal Reserve be vigilant in preserving its hard-won credibility for maintaining price stability," he said.
The Fed "will take whatever actions are necessary to keep inflation well controlled," Bernanke said.
"The economy is still producing at levels well below its potential; consequently, accommodative monetary policies are still needed," Bernanke said on Tuesday in a speech in Atlanta. At the same time, the Fed "will take whatever actions are necessary to keep inflation well controlled," he said.
Bernanke said consumer spending is being held back by an unemployment rate that rose to 9.1 percent last month, a drop in home values and tight credit. He said growth is likely to pick up as fuel prices moderate and disruptions of parts supplies ease as factories in Japan recover from an earthquake and tsunami.
"Overall, the economic recovery appears to be continuing at a moderate pace, albeit at a rate that is both uneven across sectors and frustratingly slow from the perspective of millions of unemployed and underemployed workers," Bernanke said.
Treasury two-year note yields dropped two basis points, or 0.02 percentage point, to 0.4 percent on Tuesday in New York, the lowest level this year. The Standard & Poor's 500 Index fell 0.1 percent to 1,284.94 after rallying as much as 0.8 percent.
Bernanke has spurred growth by holding the main interest rate near zero since December 2008 and expanding the Fed's balance sheet to US$2.79 trillion.
The Federal Open Market Committee said in April it will complete a program to purchase US$600 billion in bonds this month, a policy known as quantitative easing, and affirmed a pledge to keep interest rates low for an "extended period."
William C. Dudley, president of the Federal Reserve Bank of New York and vice chairman of the FOMC, said in a separate speech that "the recovery remains distinctly subpar in spite of aggressive monetary and fiscal stimulus."
Bernanke and Dudley both said lawmakers should rein in budget deficits to ensure long-term growth without cutting back so quickly as to choke off the recovery.
"Establishing a credible plan for reducing future deficits now would not only enhance economic performance in the long run, but could also yield near-term benefits by leading to lower long-term interest rates," Bernanke said.
On the other hand, "A sharp fiscal consolidation focused on the very near term could be self-defeating," he said.
While a recent increase in inflation is a "concern," Bernanke said he doesn't see "much evidence that inflation is becoming broad-based or ingrained in our economy."
Still, "the longer-run health of the economy requires that the Federal Reserve be vigilant in preserving its hard-won credibility for maintaining price stability," he said.
The Fed "will take whatever actions are necessary to keep inflation well controlled," Bernanke said.
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