View Count: 191 |  Publish Date: May 22, 2013
Bernanke signals Fed to maintain stimulus efforts
MARTIN CRUTSINGER , The Associated PressPosted: Wednesday, May 22, 2013, 12:29 PM
WASHINGTON - Chairman Ben Bernanke told Congress Wednesday that the U.S. job market remains weak and that it is too soon for the Federal Reserve to end its extraordinary stimulus programs.
Reducing the Feds efforts to keep borrowing rates low would carry a substantial risk of slowing or ending the economic recovery, Bernanke said in testimony to the Joint Economic Committee, a panel that includes members of the House and Senate.
Bernanke noted that the economy is growing moderately this year and unemployment has fallen to a four-year low of 7.5 percent. Still, unemployment remains well above levels consistent with healthy economies. And Bernanke said higher taxes and deep federal spending cuts are expected to slow economic growth this year.
His comments about the many risks facing the economy, along with the benefits gained so far from the Feds stimulus, suggest the Fed is not ready to taper bond purchases that have helped lower long-term interest rates to encourage more borrowing and spending.
Stocks surged on Bernankes comments, although they gave up some gains after Bernanke wouldnt rule out scaling back the bond purchases by the fall. The Dow Jones industrial average was up 105 points at 11:30 a.m. EDT.
The Fed has said it plans to continue its $85 billion-a-month in Treasury and mortgage bond purchases until the job market improves substantially. And after its April 30-May 1 meeting, the Fed said it could increase or decrease the pace depending on how the job market and inflation fare.
The panels chairman, Rep. Kevin Brady, R-Texas, criticized the Feds aggressive policies and pressed Bernanke to explain when the Fed might begin to reduce its bond purchases.
Bernanke said the Fed could take a step down if the job market shows real and sustainable progress over the next few meetings. When Brady asked if that could happen before Labor Day, Bernanke said, I dont know, it will depend on the data.
But Bernanke made clear that the Fed could reverse course and increase its purchases if the economy began to falter. We could raise or lower our purchases going forward, Bernanke said.
In recent months, the job market and the broader economy have shown renewed vigor. The economy has added an average of 208,000 jobs a month since November. Thats up from only 138,000 a month in the previous six months.
The economy has benefited from a resurgent housing market, rising consumer confidence and the Feds stimulus actions, which have helped ignite a stock market rally. The Standard & Poors 500 stock index has jumped 17 percent this year to a record high. Higher stock prices tend to make many people feel wealthier and more inclined to spend.
Those gains, in part, are why critics of the bond purchases, including some Fed regional bank presidents, have questioned the need to continue them at their current pace. They argue that keeping interest rates too low for too long could send inflation surging or inflate dangerous bubbles in assets such as stocks or real estate. Such a bubble could burst with the same destabilizing effects that the housing bust caused.
Bernanke has had solid support for the bond purchases among the voting members of the Feds interest-rate setting committee. At each of the Feds three policy meetings this year, the committee has approved the purchases 11-1. MARTIN CRUTSINGER The Associated Press #post2 .pw-icon.ra1-pw-icon-reddit {background: url() 0px 0px no-repeat !important;width: 60px !important;height: 20px !important;margin-right:8px;}#post2 .pw-icon.ra1-pw-icon-email {background: url() 0px 0px no-repeat !important;width: 71px !important;height: 28px !important;}

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