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Bernanke Details Stimulus Exit Plan to Congress

Despite recent improvements in the economy, the Federal Reserve will keep interest rates near zero, chairman Ben Bernanke told lawmakers Tuesday. Greg Ip of "The Economist" examines the chairman's testimony with Gwen Ifill, and discusses the central bank's plans to roll back crisis measures taken during the credit crunch.

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  • JIM LEHRER:

    And still to come on the NewsHour tonight: fighting for fighter jets; learning about feelings; and making a deal in California. That all follows the economic outlook, and to Gwen Ifill.

  • GWEN IFILL:

    Federal Reserve Chairman Ben Bernanke returned to Capitol Hill today for his semi-annual report on the state of the economy and just in time to deal with congressional anxiety about the cost and the reach of the Fed's intervention into the nation's financial systems. Bernanke insisted he has an exit strategy.

    Greg Ip, U.S. economics editor for the Economist, joins us to explain exactly what that is. He sounded like he was trying to be optimistic today, Greg.

  • GREG IP:

    I think he was. He talked about, for example, how the markets have basically come back to normal in many areas from a situation where they were practically dysfunctional last fall.

    The stock market is doing well. Investors don't seem to be as fearful. They're buying stocks and bonds. Banks had a very good quarter, and they've raised a ton of capital.

    And the signs in the economy are also getting better. Consumer spending seems to be stabilizing, and our trading partners overseas are also seeing turnarounds in their economies.

  • GWEN IFILL:

    And yet, in spite of all that, some of the lawmakers today seemed to express concern about what they felt was an unprecedented infusion of Fed money, basically printing money into the private economy, because it might spur inflation.

    Chairman Bernanke was questioned here by Republican Bill Posey of Florida.

    BEN BERNANKE, Federal Reserve chairman: Well, let's be clear what's going on. The Federal Reserve is not putting money out into the economy. What we're doing is we're creating bank reserves. That's money that the banks hold with the Fed, so it's just sitting there idly. It's not chasing any goods, OK?

    So as long as those bank reserves are sitting idly, broader measures of money that measure the circulation of money…

  • REP. BILL POSEY, R-Fla:

    But it won't sit there idly forever.

  • BEN BERNANKE:

    Right, exactly.

  • REP. BILL POSEY:

    The purpose of it is not to sit there idly forever.

  • BEN BERNANKE:

    Right.

  • REP. BILL POSEY:

    And while there may be a time lapse, certainly, unless that money gets sucked back in out of circulation, it's going to cause inflation. There's no denying it.

  • BEN BERNANKE:

    If it's not sucked back in. But as I was describing, we have ways of sucking it back in.

  • GWEN IFILL:

    "We have ways of sucking it back in." What does that mean?

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