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Benanke Reaffirms Record-Low Interest Policy
Feb 25,2010 08:50CST
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Source:SMM

WASHINGTON, Feb. 25 -- The U.S. Federal Reserve Chairman Ben Bernanke said Wednesday that record-low interest rates are still needed to boost the economic recovery and to tackle the high unemployment.

The central bank continues to anticipate that economic conditions -- including low rates of resource utilization, subdued inflation trends, and stable inflation expectations -- are likely to warrant exceptionally low levels of the federal funds rate for an extended period, Bernanke said in his semiannual monetary policy report to the Congress.

"Over the past year, the Federal Reserve has employed a wide array of tools to promote economic recovery and preserve price stability," Bernanke said.

The federal funds rate, the leading rate, has been maintained at a historically low range of 0 to 1/4 percent since December 2008.

The Fed chief said that the U.S. economy expanded at about a 4 percent annual rate during the second half of last year. Private final demand does seem to be growing at a moderate pace, buoyed in part by a general improvement in financial conditions.

The central bank anticipates a moderate pace of economic recovery, with economic growth of roughly 3 to 3-1/2 percent in 2010 and 3-1/2 to 4-1/2 percent in 2011.

However, "the job market has been hit especially hard by the recession," as employers reacted to sharp sales declines and concerns about credit availability by deeply cutting their workforces in late 2008 and in 2009.

Bernanke said that some recent indicators suggest the deterioration in the labor market is abating, but "the job market remains quite weak, with the unemployment rate near 10 percent and job openings scarce."

Bernanke said that consistent with moderate economic growth, the Fed expects the unemployment rate to decline only slowly, to a range of roughly 6-1/2 to 7-1/2 percent by the end of 2012, still well above their estimate of the long-run sustainable rate of about 5 percent.

Inflation is expected to remain subdued, with consumer prices rising at rates between 1 and 2 percent in 2010 through 2012.

Bernanke also reaffirmed his support to financial regulatory reform.

"Strengthening our financial regulatory system is essential for the long-term economic stability of the nation." he said, "the Federal Reserve strongly supports the Congress's ongoing efforts to achieve comprehensive financial reform."

He noted that more generally, "the Federal Reserve is committed to doing all that can be done to ensure that our economy is never again devastated by a financial collapse. We look forward to working with the Congress to develop effective and comprehensive reform of the financial regulatory framework."

 

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