News Column

Inflation Unaffected by Interest Rates: Bernanke

Oct. 1, 2012
Money news

Federal Reserve Chairman Ben Bernanke said Monday the policies he has deployed to improve the US economy haven't caused worries over inflation.

Five years of low interest rate policies "have not led to increased inflation," Bernanke said in a speech to the Economic Club of Indiana. He added that public's expectations for price gains "remain quite stable" and the Federal Reserve has the necessary tools to tighten its policies when needed to prevent "inflationary pressures down the road."

The inflation rate in the US has been stable at about 2 per cent since 2008 despite low interest rates. That is under the level that the Fed considers critical.

Bernanke also defended the expansive monetary policy of quantitative easing as unavoidable and he pledged to uphold it even after the US economy gains strength.

"We expect that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economy strengthens," Bernanke said in his speech in Indianapolis.

The recession destroyed many jobs, paralyzed growth and caused sharp reductions in real estate values and the value of companies, he said. He acknowledged that low interest rates were a problem for savers, but it said it was more important now to stimulate the economy.

The Fed extended its plan to keep interest rates at around zero from the end 2014 to the middle of 2015. Bernanke said that didn't mean the Fed expected the economy to be weak through that year.

Bernanke announced the latest round of quantitative easing on September 13 when he said the Fed would expand its holdings of long-term securities by buying up an additional 40 billion dollars a month of mortgage-backed securities at least until there was sustained improvement in unemployment.

The new programme, called QE3, was the third round of quantitative easing by the Federal Reserve since 2008, when the US was dipping into recession.

Source: Copyright 2012 dpa Deutsche Presse-Agentur GmbH

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