Bernanke tells Congress that Fed has exit strategy

Discussion in 'Wall St. News' started by S2007S, Jul 21, 2009.

  1. S2007S



    just a bunch of garbage to me, he has no"EXIT" strategy, its a bunch of damn lies that for some reason so many believe....

    Bernanke tells Congress that Fed has exit strategy
    Bernanke confident Fed can unwind stimulus to prevent inflation when US economy recovers

    * By Jeannine Aversa, AP Economics Writer
    * On Tuesday July 21, 2009, 10:32 am EDT

    WASHINGTON (AP) -- Federal Reserve Chairman Ben Bernanke sought to assure Wall Street and Congress Tuesday that the U.S. central bank will be able to reel in its extraordinary economic stimulus and prevent a flare up of inflation when the recovery is more firmly rooted.

    Bernanke, in prepared testimony before the House Financial Services Committee, also said any such steps will be far off in the future and that the central bank's focus remains "fostering economic recovery."

    To that end, he again pledged to keep its key bank lending rate at a record low near zero for an "extended period." Economists predict rates will stay at record lows through the rest of this year.

    Bernanke is expected to face tough questions from lawmakers about taxpayer bailouts of financial companies, slow-moving government efforts to curb home foreclosures and efforts by the Obama administration to expand its regulatory duties.

    "The Fed has made some big mistakes," said the panel's highest-ranking Republican, Spencer Bachus.Letting the Fed become the financial supercop would be "just inviting a false sense of security" that would be shattered at taxpayers' expense, he warned.

    Laying out a plan now to unwind the Fed's stimulus may give Bernanke more leeway to hold rates at record lows to brace the economy. That is because doing so could tamp down investors' fears that the Fed's aggressive actions to lift the country out of its longest recession since World War II could spur inflation later on.

    "It is important to assure the public and the markets that the extraordinary policy measures we have taken in response to the financial crisis and the recession can be withdrawn in a smooth and timely manner as needed, thereby avoiding the risk that policy stimulus could lead to a future rise in inflation," Bernanke said. "We are confident that we have the necessary tools to implement that strategy when appropriate."

    The Fed chief also sought to beat back an Obama administration proposal that would create a new consumer protection regulator for financial services and strip some of those duties from the central bank.

    Consumer groups and lawmakers have blamed the Fed for not cracking down early on dubious mortgages practices that fed the housing boom and figured into its collapse. Later this week, the Fed will issue a proposal boosting disclosures on home mortgages and home equity lines of credit. It also will include new rules governing the compensation of mortgage originators.

    Bernanke also urged Congress to keep proposals to audit the Fed away from monetary policy duties. "A perceived loss of monetary policy independence could raise fears about future inflation," he warned.

    To revive the economy, the Fed has plowed trillions into the financial system in an effort to drive down rates on mortgages and other consumer debt. It also has created programs to bust through credit clogs, a key ingredient to turning the economy around.

    When the time comes, the Fed will need to soak up that money.

    Besides raising its key bank lending rate, the Fed can raise the rate it pays banks on reserve balances held at the central bank, Bernanke said. That would give banks an incentive to keep their money parked there, rather having it flow back into the financial system, where it can stoke inflationary pressures. The Fed also can drain money from the financial system by selling securities from its portfolio with an agreement to buy them back at a later date or it can sell securities outright.

    Steering the economy from recession to recovery will be a delicate move for Bernanke -- economically and politically.

    On the economic front, Bernanke repeated the Fed's forecast that the economy should start growing again in the second half of this year, but he warned growth would be slight, leading to higher unemployment.

    Despite some improvements -- including a stabilization in consumer spending and moderating declines in housing activity -- the economy remains vulnerable, he said.

    "Job insecurity, together with declines in home values and tight credit, is likely to limit gains in consumer spending," Bernanke said. "The possibility that the recent stabilization in household spending will prove transient is an important downside risk to the outlook."

    The nation's unemployment rate climbed to a 26-year high of 9.5 percent in June. The Fed says it could rise as high as 10.1 percent this year, and stay elevated into 2011. The post-World War II high was 10.8 percent at the end of 1982, when the country had suffered through a severe recession.

    Expectations for a lethargic recovery should keep a lid on inflation this year, Bernanke said. With consumers likely to stay cautious amid rising unemployment, companies won't be able to jack up prices.
  2. Yawn.
  3. lets see berneke worm his way out of this one.

    love to see him squrim on
  4. MattF


    sure he does!

    they just abandon ship when all hell breaks loose :D
  5. Look, another highly productive, incredibly thought provoking, and extremely beneficial post by Landis!

    Thanks, Landis!
  6. Bernanke under Bush = bad
    Bernanke under Obama = good

    Somebody has to say it ;-) How come there is no winking smiley here?

  7. Illum


    During testimony he actually threatened inflation traders....

    Allow me to paraphrase in my own limited way..

    "If you push up commodities to the point it impacts the economy negatively, I will break my foot off in your ass and show you how wrong you are."
  8. If you follow the Fed's balance sheet from week to week, it is pretty clear that Ben made a "mini" pre-emptive strike a couple of weeks ago.

    I believe that that is what caused crude to take a break from $73 down to $59.
  9. The Bond market did.

    Do you not trade either?

    #10     Jul 21, 2009