Bernanke Says Economy ‘Still Far’ From Ideal

Bernanke Says Economy ‘Still Far’ From Ideal

Washington (AFP) – Federal Reserve Chairman Ben Bernanke said Tuesday the economy remains far from where the Fed wants to see it and that the U.S. central bank is still committed to its stimulus policies.

Bernanke gave no hint as to when Fed policymakers might begin cutting back its $85 billion a month in asset purchases, saying they remain “committed to maintaining highly accommodative policies for as long as they are needed.”

“The economy has made significant progress since the depths of the recession,” he said in a prepared speech to be delivered to a group of economists on Tuesday evening.

“However, we are still far from where we would like to be, and, consequently, it may be some time before monetary policy returns to more normal settings.”

In the speech to the National Economists Club about the Fed’s attempt to better communicate its policies, Bernanke said investors overreacted earlier this year when they sent U.S. interest rates sharply higher.

That came in May and June after Bernanke spelled out the Federal Open Market Committee’s tentative plans for cutting its stimulus beginning late this year and ending it entirely by mid-2014.

The rise in rates at that time “was neither welcome nor warranted, in the judgment of the FOMC,” he said.

“This change in expectations did not correspond to any actual lessening in the FOMC’s commitment” to support growth.

That misinterpretation led to the shock in September when the FOMC went against expectations and did not begin the taper of the stimulus program.

But Bernanke said that only forced investors and traders to pay more attention to the FOMC’s stated forecast to hold interest rates ultra-low through 2015.

Now, he said, rates are in line with monetary policy.

“In particular, following the decision, longer-term rates fell and expectations of short-term rates derived from financial market prices showed, and continue to show, a pattern more consistent with the guidance.”

Bernanke, with about 11 weeks left in his eight year tenure as Fed chair, reiterated the FOMC’s commitment in its easy-money stance in precise parallel with what his designated successor, Fed vice-chair Janet Yellen, told a Senate panel last week.

The Fed believes that on balance the asset purchase program is helping economic growth, even if the impact lessens over time, he said.

In addition, even if the $85 billion a month program is ended over the next year, the Fed is likely to hold interest rates ultra-low for longer, until it sees growth is firm and self-sustaining.

The rate could remain low even “well after” the rate of unemployment, now at 7.3 percent, falls below the Fed’s target of 6.5 percent, he said.

AFP Photo/Brendan Smialowski

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