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Bernanke sees tighter policies as economy heals
(Agencies)
Updated: 2009-10-09 11:22 Although Bernanke indicated that it is not yet the time to roll back the Fed's supportive policies, he said the bank has the tools and the ability to pull back its flood of cash and loans to the economy and to raise interest rates when the time is right "When the economic outlook has improved sufficiently, we will be prepared to tighten the stance of monetary policy and eventually return our balance sheet to a more normal configuration," he said. Bernanke gave a detailed tour of the Fed's assets and liabilities, which have ballooned from around to almost $2.1 trillion from $900 billion. As the United States appears to be pulling out of a painful and lengthy recession, observers are watching closely for signs of when and how quickly the Fed intends to pull back its help.
To do so, it would raise interest rates on reserve balances that banks keep at the Fed and by other actions - specifically reverse repurchase agreements, term deposits to banks, and sales of holdings of longer-term assets. Those steps would drain cash and help raise short-term interest rates, he said. Other Fed officials on Thursday sounded cautiously optimistic notes on the economy while saying it is too soon to pull back the life support system. "We're going to look at the data as it comes in. Right now I don't think it's time to raise interest rates," Richmond Fed President Jeffrey Lacker told reporters after a speech. Another regional president of the U.S. central bank system, Richard Fisher of the Dallas Fed, echoed Lacker's comments. "We're going to move when we have to move. But it's not now," Fisher said in an interview with The Wall Street Journal. Speaking in Phoenix, Fed Governor Daniel Tarullo also backed the idea of keeping interest rates low for some time, if only because the economy's prospects are so unsettled. "With the effects of the February stimulus package diminishing next year, bank lending that is still declining, and continued dysfunction in some parts of capital markets, there is considerable uncertainty as to how robust growth will be in 2010," he said at a community leaders lunch. While the Fed has been under fire from Congress and other critics who believe its lenient oversight of financial institutions and lending practices contributed to the crisis, Bernanke got a significant political boost on Thursday when a key senator said he saw nothing in the way of his confirmation for a second term as Fed chairman. Senate Banking Committee Chairman Christopher Dodd, asked if he saw any roadblocks to the Senate reconfirming Bernanke, whose four-year term expires in January, said, "No, I don't think so." "I've indicated I want to be supportive. I think Ben Bernanke's done a very good job, particularly in the last year or so. I think that view is embraced by a lot of people," Dodd, a Democrat, told Reuters Television.
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