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Bernanke makes strong defense of Fed rate policies


February 17. 2013 6:32AM


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(AP) Chairman Ben Bernanke offered a sharp defense Monday of the Federal Reserve's bold policies to stimulate the weak economy, while cautioning Congress to respect its private discussions.


The Fed needs to drive down 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 lower the federal budget deficit by reducing the government's borrowing costs and generating more tax revenue through stronger growth, Bernanke said.


Bernanke cautioned Congress against changing the law so it could review the Fed's interest-rate policy discussions. Such a step would improperly inject political pressure into those talks and make Fed policymakers less likely to act, Bernanke warns.


The speech comes just weeks after the Fed voted at its Sept. 12-13 meeting to purchase mortgage bonds to help boost the housing market. The Fed left the program open ended, saying that it would keep buying the bonds until the job market showed substantial improvement.


The Fed also said at the September meeting it plans to keep its benchmark short-term interest rate near zero through at least mid-2015.


In his speech, Bernanke reassured investors that the timetable for keeping rates low "doesn't mean we expect the economy to be weak through 2015." Instead, he said the Fed expects to keep rates low well after the economy strengthens.


Bernanke spoke two days before President Barack Obama and GOP challenger Mitt Romney will hold a debate in which the economy is a central theme. And his speech comes four days before the government releases its September job figures. Economists expect just modest hiring gains and continued unemployment above 8 percent.


The U.S. economy is struggling more than three years after the Great Recession ended. High unemployment and weak pay growth has made consumers more cautious about spending, which has hurt manufacturing and slowed broader growth.


The Fed is hoping to make home buying more attractive to help the broader economy. When home prices rise, people typically feel wealthier and spend more. Consumer spending drives nearly 70 percent of economic activity.


Associated Press


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