The Associated Press
Record-low interest rates are still needed to rev up the U.S. economic recovery, Federal Reserve Chairman Ben Bernanke told Congress on Thursday.
Bernanke, in testimony to the House Financial Services Committee, essentially repeated the rationale behind the Fed’s decision last week to hold rates near zero. He cited still-fragile economic conditions, and noted that inflation is low, which gives the Fed leeway to keep rates at rock-bottom levels.
The Fed chief didn’t offer new clues about when the central bank might reverse course and start tightening credit. He said that would need to happen when the “expansion matures.”
Some investors and analysts think the Fed could begin to boost higher rates in the fall.
In contrast to Bernanke, the head of Canada’s central bank sent a strong hint this week that it he may be ready to push up interest rates sooner than previously anticipated.
The Bank of Canada has long said it expected to keep its policy rate at the current all-time low of 0.25 per cent until the end of the second quarter of 2010, unless inflation got out of hand.
Observers have been trying to determine whether the Bank of Canada will decide whether a recent surge of inflation — still within the target range but higher than expected — will prompt Bank of Canada governor Mark Carney to move sooner.
Carney underlined this week that Canada’s low interest rates are conditional on tame inflation — prompting some economists to predict an early hike.
Deciding when to tighten credit is the biggest challenge facing central bankers in many countries, which had lowered the cost of borrowing to stimulate their economies after a financial crisis erupted in late 2008.
For Bernanke, whose second term started in February, moving too soon could short-circuit the recovery. Waiting too long could unleash inflation and sow the seeds for new speculative bubbles in stocks or commodities or other assets.
“The key point … is that the Fed is no closer to implementing its exit strategy,” said Paul Dales, economist at Capital Economics. Bernanke’s remarks suggest “ he is in no hurry” to raise rates, Dales said.
The Fed’s decision to keep rates at record lows for an “extended period” drew one dissent.
Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, expressed concern that low rates could cause a buildup of “financial imbalances” and put the economy’s stability at risk. Analysts took that to mean low rates could spur a new speculative bubble later on that could burst and hurt the economy.
A housing boom that went bust thrust the country into the worst economic and financial crises since the 1930s.
with files from The Canadian Press
Record low rates still needed to rev up U.S. economic recovery, Bernanke says
Fed offers different inflation outlook than Bank of Canada
- By: Jeannine Aversa
- March 25, 2010 March 25, 2010
- 10:46