Fed Chairman Ben Bernanke Expresses Cautious Optimism on Capitol Hill
Wednesday, June 03, 2009SUSIE GHARIB: Ben Bernanke said today he expects the U.S. economy to begin growing by the end of this year, but it won't be a robust recovery. Testifying on Capitol Hill, the chairman of the Federal Reserve delivered a cautiously upbeat forecast. He warned lawmakers the recovery will quote, gradually gain momentum, but the unemployment rate will continue to rise. Bernanke also is concerned about massive government deficits, saying they threaten the nation's financial stability. Washington bureau chief Darren Gersh reports.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: For weeks, markets have been debating the reasons behind a recent spike in interest rates. Today the Fed chairman weighed in explaining to a congressional panel the jump in bond and mortgage rates was part good news, part bad news.
BEN BERNANKE, FEDERAL RESERVE CHAIRMAN: These increases appear to reflect concerns about large Federal deficits but also other causes, including greater optimism about the economic outlook, a reversal of flight-to-quality flows and technical factors relating to the hedging of mortgage holdings.
GERSH: The Fed chairman said he wouldn't be giving any clues today about whether interest rates are high enough to force the central bank to take more aggressive action. That decision will come at a Fed policy meeting in three weeks. Bernanke does see the economy growing later this year, not by much, but enough to remove the threat of a dramatic fall in prices and wages.
BERNANKE: Our concern for a time at least was that the recession would be so severe that we would see deflation and we have taken strong actions to try to avoid that and I think the fear of deflation has receded somewhat and that is a positive development.
GERSH: The other concern out there is inflation, especially price increases that might be caused by the Federal Reserve printing money to finance the growing public debt. Bernanke warned the government could not run huge deficits indefinitely without damaging the economy. But for now, he said the nation could finance its skyrocketing debt, because the U.S. is borrowing less from overseas as consumers cut back and the trade deficit falls. Still, Bernanke assured Wisconsin Republican Paul Ryan the Fed could change it's near zero interest rate policy, accommodation, as economists call it, at the right moment.
BERNANKE: You don't want to remove accommodation so soon, as to, you know, as to prevent the recovery from taking hold. On the other hand, you don't want to wait so long as to lead to a inflation in the medium term. We're fully confident from a political independence point of view, we'll make that decision as we need to make it.
REP. PAUL RYAN (R) WISCONSIN: It will clearly occur in an atmosphere of more pressure than I think you've seen in the past given where we are right now.
GERSH: Bernanke signaled some banks may soon be under less political pressure. The Fed chairman said he'll release a list next week of banks that should be able to repay their government TARP loans, which means the Treasury could be getting some cash back in a matter of weeks. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
