Thursday, March 25, 2010

Bernanke Confirms Goldman Sachs: Interest Rates To Stay Low

In a session of the Committee of the House Financial Services on exit strategy and its effect on the recovery of the economy, Ben Bernanke confirmed today what Goldman Sachs' Chief Economist said yesterday: interest rates are still at exceptionally low levels and are necessary to support the U.S. economy.

He added the usual words that the Fed is "ready to tighten credit when necessary to avoid inflation". In describing the steps the Fed can take to tighten credit during

"The economy continues to require support of monetary policies," "However, we have worked to ensure we have the tools to reverse, when it's time, the currently very high degree of monetary stimulus."

He added that the Fed has "total confidence" that when the time comes, it will be ready to prevent the emergence of inflation.

Bernanke said the Fed will be able to drain the large reserves of banks by means of reverse purchase agreements and term deposits, extending its control over the economy by increasing the rate paid on excess reserves.

"The use of purchase agreements and reserve deposit lines will allow the Fed to drain hundreds of billions of dollars from the banking system quickly, if it chooses this alternative," reiterating that the central bank plans to conduct transition tests this spring.

Bernanke also reiterated that the raising of the rediscount rate for a month does not represent a broad tightening of credit for households and companies. The instruments and their sequence of use by the Fed to tighten monetary policy will depend on the behavior of the economy.

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1 comment:

Anonymous said...

So basically he was saying, "What we've been doing hasn't worked. So... we're just going to keep doing it."

Yeah. That should work.

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