Newspaper article Pittsburgh Post-Gazette (Pittsburgh, PA)

Bernanke: Fed Policy's Benefits Outweigh Risk Chairman Testifies in Favor of Central Bank's Hefty Asset Buying

Newspaper article Pittsburgh Post-Gazette (Pittsburgh, PA)

Bernanke: Fed Policy's Benefits Outweigh Risk Chairman Testifies in Favor of Central Bank's Hefty Asset Buying

Article excerpt

WASHINGTON -- Federal Reserve Chairman Ben Bernanke defended the central bank's unprecedented asset purchases, saying they are supporting the expansion with little risk of inflation or asset- price bubbles.

"We do not see the potential costs of the increased risk-taking in some financial markets as outweighing the benefits of promoting a stronger economic recovery," Mr. Bernanke said Tuesday in testimony to the Senate Banking Committee. "Inflation is currently subdued, and inflation expectations appear well anchored."

Mr. Bernanke used his testimony to push back against colleagues on the Federal Open Market Committee who favor curtailing the $85 billion in monthly bond-buying amid concern about the growth of the Fed's record $3.1 trillion balance sheet. He also differed with senators who said the central bank was engaged in a "currency war" and said he continues to work on ensuring that even the largest financial institutions don't get special status as being too big to fail.

"He pretty much had a checklist of all the new arguments about the efficacy of low rates and risks of QE," said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ in New York. "And he checked them all off: these are not the concerns that you think they are."

Mr. Bernanke faced bipartisan questioning on the central bank's efforts to remove the impression that some banks are too big to fail. Sens. Elizabeth Warren, D-Mass., and David Vitter, R-La., pressed him to do more.

Ms. Warren asked Mr. Bernanke, "We've now understood this problem for nearly five years, so when are we going to get rid of 'too big to fail'?"

Mr. Bernanke said that the Fed is putting "a lot of effort into this" and that "as somebody who has spent a lot of late nights trying to deal with these problems during the crisis, I would very much like to have the confidence that we could close down a large institution without causing damage to the rest of the economy."

Mr. Bernanke also denied that the Fed was engaging in a currency war, a term used to refer to competitive devaluations, through its asset purchase programs. That was in response to Sen. Bob Corker, R- Tenn., who opened his questions by asking "when the Fed decided it was going to stimulate a global currency war as it did, did you -- did you embark on that thinking, well you know, our country's in trouble and let's -- sort of the heck with everybody else?"

Mr. Corker also said that "I don't think there's any question that you would be the biggest dove, if you will, since World War II," using the term for Fed officials who favor easy policy.

Mr. Bernanke responded, "Maybe in some respects I am, but on the other hand my inflation record is the best of any Federal Reserve chairman in the postwar period -- at least one of the best, about 2 percent average inflation."

Mr. …

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