Ben Bernanke today (Feb. 7) reiterated the Federal Reserve’s plan to hold interest rates near record lows until at least late 2014, according to an Associated Press report.
The Fed chairman stuck with the three-year time line at a Senate Budget Committee hearing, even after the government last week reported a surge in January hiring that drove the unemployment rate down to a three-year low.
None of the senators asked Bernanke whether the encouraging job figures were reason enough for the Fed to rethink holding interest rates low for that long. And Bernanke didn’t tout the hiring data during the two-hour hearing.
If anything, Bernanke maintained the Fed’s position: the economy is improving at a frustratingly slow pace and that low rates are necessary to boost growth.
The Fed has kept its benchmark interest rate near zero for the past three years. In its policy statement in January, the Fed said it would probably not increase that rate until late 2014 at the earliest — a year and a half later than it had previously said.
During the hearing, Republicans repeated familiar concerns. They said keeping rates down could raise the risk of inflation. And low rates punish traditional savers. Bernanke said Fed officials were aware of the risks and were closely monitoring inflation, which he said was low and falling.
The Fed last month set an annual inflation target of 2%. Inflation in October-December quarter was below that target.
“Given that inflation is close to target, I don’t think we would be doing radically different things at this point in time with a single mandate,” Bernanke said.
The Federal Reserve acknowledged Wednesday (June 22) that the economy is growing more slowly than it expected. But it said it will complete its $600 billion Treasury bond buying program by June 30 as planned and announced no further efforts to boost the economy.
Ending a two-day meeting, the Fed repeated a pledge to keep interest rates at record lows near zero for “an extended period,” a promise it’s made for more than two years.
Fed officials said in a statement that they think the main causes of the economy’s slowdown, such as high gas prices and supply disruptions from Japan’s disasters, are temporary. Once those problems subside, Fed officials said the economy should rebound.
Still, the statement stood in contrast to the Fed’s more upbeat view when officials last met eight weeks ago. At that time, the central bank said the job market was gradually improving.
The new statement acknowledged the slowdown that’s occurred over the past two months. The economy added just 54,000 jobs in May, far fewer than in the previous two months. Consumer spending has weakened, too.
The Fed said it would keep its holdings of Treasury bonds at current levels. That policy is intended to keep consumer and business loan rates at low levels to stimulate spending.
Though the central bank noted that inflation has risen, it expects those pressures to be temporary as well.
Bernanke and his colleagues are trying to keep a fragile economy on track two years after the Great Recession officially ended. A spike in gasoline prices earlier this year made consumers and businesses more cautious about spending. Employers scaled back hiring in May.
Economic growth slowed to 1.8% in the first three months of the year. It isn’t expected to be much higher in the current quarter.