Bernanke signals US rates to be kept low
Bernanke signals US rates to be kept low
By James Politi in Washington
Copyright The Financial Times Limited 2010
Published: February 24 2010 15:53 | Last updated: February 24 2010 23:47
http://www.ft.com/cms/s/0/34f218ce-2159-11df-a6b2-00144feab49a.html
US interest rates will remain at exceptionally low levels for an “extended period” in spite of the “nascent” economic recovery, Ben Bernanke, chairman of the Federal Reserve, told Congress on Wednesday.
Facing lawmakers for the first time in his second term as Fed chairman, he told the House financial services committee: “The Federal Open Market committee continues to anticipate that economic conditions – including low rates of resource utilisation, subdued inflation trends and stable inflation expectations – are likely to warrant exceptionally low levels of the federal funds rate for an extended period.”
The testimony boosted stocks, with the S&P 500 gaining nearly 1 per cent. Treasuries were little changed, while the dollar was slightly lower.
The insistence that rate rises are months away will damp fears that last week’s increase in the discount rate – at which commercial banks can borrow emergency cash from the central bank – from 0.5 per cent to 0.75 per cent heralds a swifter tightening of monetary policy.
Fed officials, including Mr Bernanke, have indicated it was simply a move to unwind emergency liquidity measures put in place during the crisis, as a result of improving conditions in the financial markets, and not a tightening move. Goldman Sachs economists said it was “crystal clear” the Fed did not anticipate raising rates soon.
Nevertheless, the Fed this month began to lay out its vision for the sequence of measures that it expects to take to withdraw reserves from the financial system once the economic recovery is sufficiently strong. Although the economy grew at an annualised rate of 5.7 per cent in the fourth quarter of 2009, economists are expecting the pace of growth to slow over the course of the year. The Fed is expecting growth of 3 per cent to 3.5 per cent this year.
“A sustained recovery will depend on continued growth in private sector final demand for goods and services,” said Mr Bernanke. As he began speaking, data showed sales of new homes in the US unexpectedly fell in January, dropping to the lowest level on record.
Mr Bernanke also addressed the fallout from the financial crisis. He said the US central bank would step up surveillance of financial institutions and agreed that congressional investigators should be allowed to audit the emergency facilities put in place during the crisis.
By James Politi in Washington
Copyright The Financial Times Limited 2010
Published: February 24 2010 15:53 | Last updated: February 24 2010 23:47
http://www.ft.com/cms/s/0/34f218ce-2159-11df-a6b2-00144feab49a.html
US interest rates will remain at exceptionally low levels for an “extended period” in spite of the “nascent” economic recovery, Ben Bernanke, chairman of the Federal Reserve, told Congress on Wednesday.
Facing lawmakers for the first time in his second term as Fed chairman, he told the House financial services committee: “The Federal Open Market committee continues to anticipate that economic conditions – including low rates of resource utilisation, subdued inflation trends and stable inflation expectations – are likely to warrant exceptionally low levels of the federal funds rate for an extended period.”
The testimony boosted stocks, with the S&P 500 gaining nearly 1 per cent. Treasuries were little changed, while the dollar was slightly lower.
The insistence that rate rises are months away will damp fears that last week’s increase in the discount rate – at which commercial banks can borrow emergency cash from the central bank – from 0.5 per cent to 0.75 per cent heralds a swifter tightening of monetary policy.
Fed officials, including Mr Bernanke, have indicated it was simply a move to unwind emergency liquidity measures put in place during the crisis, as a result of improving conditions in the financial markets, and not a tightening move. Goldman Sachs economists said it was “crystal clear” the Fed did not anticipate raising rates soon.
Nevertheless, the Fed this month began to lay out its vision for the sequence of measures that it expects to take to withdraw reserves from the financial system once the economic recovery is sufficiently strong. Although the economy grew at an annualised rate of 5.7 per cent in the fourth quarter of 2009, economists are expecting the pace of growth to slow over the course of the year. The Fed is expecting growth of 3 per cent to 3.5 per cent this year.
“A sustained recovery will depend on continued growth in private sector final demand for goods and services,” said Mr Bernanke. As he began speaking, data showed sales of new homes in the US unexpectedly fell in January, dropping to the lowest level on record.
Mr Bernanke also addressed the fallout from the financial crisis. He said the US central bank would step up surveillance of financial institutions and agreed that congressional investigators should be allowed to audit the emergency facilities put in place during the crisis.
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