More Fed bond buys ‘cer­tainly pos­si­ble’: Fed chief

La­hore, Is­lam­abad, Karachi Tues­day, De­cem­ber 07, 2010, Zul Haj 30, 1431

The Pak Banker - - Front Page -

WASHINGTON: The Fed­eral Re­serve could end up buy­ing more than the $600 bil­lion in U.S. govern­ment bonds it has com­mit­ted to pur­chase if the econ­omy fails to re­spond or un­em­ploy­ment stays too high, Fed Chair­man Ben Ber­nanke said.

The Fed will reg­u­larly re­view the pol­icy and could ad­just the amount of buy­ing up or down depend­ing on the econ­omy's path, he added.

In a rare tele­vised in­ter­view, Ber­nanke told that the Fed's ac­tions are aimed at sup­port­ing what is still a frag­ile eco­nomic re­cov­ery, dis­miss­ing crit­ics who ar­gue the pol­icy will lead to fu­ture in­fla­tion.

"This fear of in­fla­tion I think is way over­stated," Ber­nanke said. "What we're do­ing is low­er­ing in­ter­est rates by buy­ing Trea­sury se­cu­ri­ties," he said. "And by low­er­ing in­ter­est rates, we hope to stim­u­late the econ­omy to grow faster. The trick is to find the ap­pro­pri­ate moment when to be­gin to un­wind this pol­icy. And that's what we're go­ing to do." Ber­nanke said it would take four to five years for the coun­try's un­em­ploy­ment rate, which rose to 9.8 per­cent in Novem­ber, to come down to what he called more "nor­mal" lev­els of around 5 per­cent to 6 per­cent.

Asked if the cen­tral bank could go be­yond the $600 bil­lion of bond buys an­nounced at its Novem­ber meet­ing, Ber­nanke said: "Oh, it's cer­tainly pos­si­ble. It de­pends on the ef­fi­cacy of the pro­gram. It de­pends, on in­fla­tion. And fi­nally it de­pends on how the econ­omy looks," he said.

"We're gonna be reg­u­larly re­view­ing this," Ber­nanke said. "This is not some­thing that we've set into au­to­matic mo­tion go­ing for­ward. We want to con­tinue to think about it. Whether it needs to be changed. Whether it needs to be in­creased or de­creased or mod­i­fied."

The U.S. econ­omy grew at a mod­est 2.5 per­cent an­nual rate in the third quar­ter, and more vig­or­ous growth is needed to bring down un­em­ploy­ment.

The "60 Min­utes" in­ter­view is as part of a broader ef­fort to raise the Fed chair­man's pub­lic pro­file in or­der to counter crit­ics of Fed pol­icy -both in Washington and within the cen­tral bank it­self.

The de­ci­sion to of­fer fur­ther mon­e­tary stim­u­lus at a time overnight bor­row­ing costs are al­ready ef­fec­tively at zero and the bank­ing sys­tem is awash with $2.3 tril­lion in Fed-cre­ated credit has proven con­tro­ver­sial both at home and abroad. Many econ­o­mists, some Repub­li­can law­mak­ers, and a small but vo­cal mi­nor­ity of top of­fi­cials within the Fed worry that the cen­tral bank's ac­tions are un­likely to do much to spur eco­nomic growth with bor­row­ing costs al­ready un­usu­ally low. In­stead, they worry the mas­sive bond pur­chases will lead to dis­tor­tions in fi­nan­cial mar­kets, po­ten­tially spark­ing as­set bub­bles in un­ex­pected places. -PB News

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