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Bernanke defends Fed interest rate policy before House committee

WASHINGTON — Ben Bernanke defended the Federal Reserve's decision to hold interest rates at record-low levels for the next three years during a contentious hearing before federal lawmakers.

The Fed chairman told the House Budget Committee on Thursday that the central bank's plan is an appropriate step to combat high unemployment while inflation is stable.

Bernanke was challenged immediately on the issue by the panel's chairman, Rep. Paul Ryan, R-Wis., who said the Fed's move would risk higher inflation and hurt growth.

"I think this policy runs the great risk of fueling asset bubbles, destabilizing prices and eventually eroding the value of the dollar," Ryan told Bernanke. "The prospect of all three is adding to uncertainty and holding our economy back."

Bernanke disagreed. He said prices have stabilized since spiking in early 2011 and the dollar has shown no signs of weakening. He testified one week after the Fed signaled that a full recovery could take at least three more years. As a result, the Fed said it doesn't plan to raise its benchmark interest rate, now at a record low, before late 2014 at the earliest.

Bernanke told the panel Thursday that the economy has shown improvement, but that the pace has been frustratingly slow. He noted that many threats remain, including Europe's debt crisis and the nation's rising debt.

Ryan criticized the Fed's decision to establish an annual inflation target of 2 percent. He said Bernanke seemed willing to accept higher inflation to get lower unemployment.

Bernanke said the Fed would not waiver in its efforts to maintain low inflation, believing that provided the best framework for full employment.

Rep. Diane Black, R-Tenn., said the Fed wasn't showing enough concern about the impact low interest rates were having on people who keep their money in conservative investments, such as savings accounts. The interest on those investments hasn't kept pace with inflation.

Bernanke said the Fed was trying to get the weak economy moving and that raising interest rates could trigger a recession, which would hurt all investors.

Bernanke defends Fed interest rate policy before House committee 02/02/12 [Last modified: Thursday, February 2, 2012 11:31pm]
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