The following are highlights of comments from Federal Reserve Chairman Ben Bernanke made at a testimony to US Congress on Tuesday:
BERNANKE ON EQUITY BUBBLE AND MONETARY POLICY:
“I don’t see much evidence of an equity bubble…Equity holders are still being somewhat risk averse in their behavior. But again, we have a two-part plan. First is to monitor these different asset markets. The second is to try to understand what would be the implications if we are wrong. What would happen, who would be hurt, what would happen to financial institutions, would there be broad knock-on effects if in fact some particular asset turned out to be in a bubble. So we are trying to do both of those things.” “We do not rule out that if these problems become sufficiently worrisome, that they would be taken into account in our monetary policy.”
BERNANKE ON ‘MUTUALLY BENEFICIAL’ STIMULUS:
“We don’t view monetary policy aimed at domestic goals as being a currency war. It’s not like putting tariffs on your imports so that you can beggar-thy-neighbor to the benefit of your domestic industry. That’s not what we’re doing. If all the major economies that need support provide stimulus and extra aggregate demand, that’s mutually beneficial. Because for example China depends on the strength of Europe and the U.S. as their export market.” “This is a positive sum game, not a zero sum game, that we have here.”
BERNANKE ON WEAK FOURTH-QUARTER GDP:
“I think the fourth quarter was really a combination of transitory factors. I don’t think it really signaled any real change in the pace of growth of the economy.” “On the other hand, the pace of growth of the economy remains around 2 percent, which is positive, but it’s not as strong as we would like.”
BERNANKE ON CREDIT MARKETS AND LOW RATES:
“Credit markets are more open today, banks are lending more today. And so in some sense, the low interest rates can pass through more easily today than they could have a couple of years ago.”
BERNANKE ON UNWINDING BALANCE SHEET:
“We don’t anticipate having to do that (liquiditate a big portion of the Fed’s holdings).” “We could exit without ever selling, by letting it run off and we could tighten policy by raising (the) interest rates that we pay on reserves. That would be one strategy, for example. At any case, we have said we will sell slowly with lots of notice and we will, of course, be offering our forward guidance about rates so that there will not be a shift in rate expectations on the part of the market.” “There is no risk-free approach to this situation. The risk of not doing anything is severe as well. So, we are trying to balance these things as best we can.”
BERNANKE ON CURRENCY WARS:
“We are not engaged in a currency war, we are not targeting our currency. The G7 put out a statement which is very clear that it’s entirely appropriate for countries to use monetary policy to address their domestic objectives, in our case employment and price stability. Our position is that our expansionary monetary policies, which are being replicated in other industrial countries, are increasing demand globally and helping not only our businesses, but also businesses in other countries that export to us. So its not a beggar thy neighbor policy.”
The following are highlights of comments from Federal Reserve Chairman Ben Bernanke made at a testimony to US Congress on Tuesday:
BERNANKE ON EQUITY BUBBLE AND MONETARY POLICY:
“I don’t see much evidence of an equity bubble…Equity holders are still
being somewhat risk averse in their behavior. But again, we have a two-part
plan. First is to monitor these different asset markets. The second is to try to
understand what would be the implications if we are wrong. What would happen,
who would be hurt, what would happen to financial institutions, would there be
broad knock-on effects if in fact some particular asset turned out to be in a
bubble. So we are trying to do both of those things.”
“We do not rule out that if these problems become sufficiently worrisome,
that they would be taken into account in our monetary policy.”
BERNANKE ON ‘MUTUALLY BENEFICIAL’ STIMULUS:
“We don’t view monetary policy aimed at domestic goals as being a currency
war. It’s not like putting tariffs on your imports so that you can
beggar-thy-neighbor to the benefit of your domestic industry. That’s not what
we’re doing. If all the major economies that need support provide stimulus and
extra aggregate demand, that’s mutually beneficial. Because for example China
depends on the strength of Europe and the U.S. as their export market.”
“This is a positive sum game, not a zero sum game, that we have here.”
BERNANKE ON WEAK FOURTH-QUARTER GDP:
“I think the fourth quarter was really a combination of transitory factors.
I don’t think it really signaled any real change in the pace of growth of the
economy.”
“On the other hand, the pace of growth of the economy remains around 2
percent, which is positive, but it’s not as strong as we would like.”
BERNANKE ON CREDIT MARKETS AND LOW RATES:
“Credit markets are more open today, banks are lending more today. And so in
some sense, the low interest rates can pass through more easily today than they
could have a couple of years ago.”
BERNANKE ON UNWINDING BALANCE SHEET:
“We don’t anticipate having to do that (liquiditate a big portion of the
Fed’s holdings).”
“We could exit without ever selling, by letting it run off and we could
tighten policy by raising (the) interest rates that we pay on reserves. That
would be one strategy, for example. At any case, we have said we will sell
slowly with lots of notice and we will, of course, be offering our forward
guidance about rates so that there will not be a shift in rate expectations on
the part of the market.”
“There is no risk-free approach to this situation. The risk of not doing
anything is severe as well. So, we are trying to balance these things as best we
can.”
BERNANKE ON CURRENCY WARS:
“We are not engaged in a currency war, we are not targeting our currency.
The G7 put out a statement which is very clear that it’s entirely appropriate
for countries to use monetary policy to address their domestic objectives, in
our case employment and price stability. Our position is that our expansionary
monetary policies, which are being replicated in other industrial countries, are
increasing demand globally and helping not only our businesses, but also
businesses in other countries that export to us. So its not a beggar thy
neighbor policy.”
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