Friday, 15 Oct 2010 08:29 AM
Federal Reserve Chairman Ben S. Bernanke said additional
monetary stimulus may be warranted because inflation is too low
and unemployment is too high.
“There would appear — all else being equal — to be a case for
further action,” Bernanke said today in the text of remarks
given at a Boston Fed conference. He said the central bank could
expand asset purchases or change the language in its statement,
while saying “nonconventional policies have costs and
limitations that must be taken into account in judging whether
and how aggressively they should be used.”
He didn’t offer new details on how the Fed would undertake those
strategies or give assurances the central bank will act at its
Nov. 2-3 meeting.
Bernanke and his central bank colleagues are considering ways
they can stimulate the economy as the unemployment rate holds
near 10 percent and inflation falls short of their goals. After
lowering interest rates almost to zero and purchasing $1.7
trillion of securities, policy makers are discussing expanding
the Fed’s balance sheet by purchasing Treasuries and strategies
for raising inflation expectations, according to the minutes of
the Federal Open Market Committee’s Sept. 21 meeting.
“At current rates of inflation, the constraint imposed by the
zero lower bound on nominal interest rates is too tight” and the
“risk of deflation is higher than desirable,” Bernanke said.
“High unemployment is currently forecast to persist for some
time.”
Low Inflation
Fed officials, concerned that expectations of lower inflation
will become self-fulfilling, are debating whether to encourage
Americans to believe that prices will start rising at a faster
pace so that they would spend more of their money now, the
minutes from last month’s meeting showed. That would reduce
inflation-adjusted interest rates and stimulate the economy.
“Central bank communication provides additional means of
increasing the degree of policy accommodation,” Bernanke said.
“A step the Committee could consider, if conditions called for
it, would be to modify the language of the statement in some way
that indicates that the Committee expects to keep the target for
the federal funds rate low for longer than markets expect.”
Still, it “may be difficult to convey the Committee’s policy
intentions with sufficient precision and conditionality,” he
said.
The central bank could also expand its securities holdings,
which has in the past been “successful” at lowering interest
rates, Bernanke said. The Fed doesn’t have much experience with
that tool, which makes it difficult to decide the “appropriate
quantity and pace of purchases and to communicate this policy
response to the public,” he said.
Still Committed
Bernanke said that “despite these challenges, the Federal
Reserve remains committed to pursuing policies that promote our
dual objectives of maximum employment and price stability.”
The Fed’s September statement was the first in almost two years
of near-zero interest rates to say that too-low inflation would
merit looser monetary policy. Prices excluding food and energy
rose at a 1 percent annual pace in the three months through
August, below Fed officials’ long-term preferred range of about
1.7 percent to 2 percent.
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