US Federal Reserve Chairman Ben Bernanke signaled that the US central bank was not yet ready to abandon its ultra-low interest rates as it tried to keep a tentative economic recovery on track.
The Fed chairman, in his semiannual report to Congress on Wednesday, said he saw unemployment remaining stubbornly high, which would require the Fed to stay on a stimulative path, doing little to change monetary policy.
The report came after last week’s surprise increase in the discount rate for emergency bank loans prompted speculation that the Fed might be moving faster than anticipated to a tighter monetary stand.
In the House of Representatives Financial Services Committee, Bernanke said the economy had begun to show growth in the second half of last year after a massive stimulus effort from the Fed and the US government.
But he said the recovery “probably will be tempered by households’ desire to rebuild wealth, still-tight credit conditions facing some borrowers, and, despite some tentative signs of stabilization, continued weakness in labor markets.”
Because of these headwinds, Bernanke said that economic conditions are “likely to warrant exceptionally low levels of the federal funds rate for an extended period,” repeating a key phrase used by the central bank.
Bernanke was to appear for a second day of testimony on the report before the Senate Banking Committee yesterday.
The Fed has kept its base rate in a range of zero to 0.25 percent for more than a year as part of massive effort to spark recovery. A variety of other programs to restore credit flows are gradually being wound down.
The central raised its discount rate for emergency bank loans a quarter point last Friday but indicated that this was not a sign of tightening of overall policy.
The market focus on the Fed chief’s remarks overshadowed an unexpected drop in new home sales last month to a record low. Stocks rallied while the dollar fell.
Sales plunged 11.2 percent to a seasonally adjusted annual rate of 309,000, from a revised December rate of 348,000, the US Commerce Department said in a fresh sign of weakness in the troubled housing market.
The third consecutive month of declining sales surprised most analysts who had expected sales to increase to 354,000.
“Dollar bulls were sorely disappointed by Bernanke’s comments,” said Kathy Lien at Global Forex Trading.
“At minimum, traders wanted to hear optimism from the Fed Chairman but unfortunately his comments were subdued,” she said.
“With many Americans still out of work, it would have been politically unsavvy for Bernanke to appear overly optimistic, knowing that members of Congress will be criticizing the pace of recovery in an election year where their constituents face near-double-digit unemployment,” she said.
Bernanke reiterated that the Fed had an exit strategy to avoid a surge in inflation when the economy recovers, but was not ready to use this.
“The Federal Reserve is taking steps to ensure that it will be able to smoothly withdraw extraordinary policy accommodation when appropriate,” he said.
The Fed was readying a variety of tools, including the rate it pays on bank deposits at the Fed, to mop up liquidity in the financial system, he said.
RISK REMAINS: An official said that with the US presidential elections so close, it is unclear if China would hold war games or keep its reaction to angry words The Ministry of National Defense said it was “on alert” as it detected a Chinese aircraft carrier group to Taiwan’s south yesterday amid concerns in Taiwan about the possibility of a new round of Chinese war games. The ministry said in a statement that a Chinese navy group led by the carrier Liaoning had entered waters near the Bashi Channel, which connects the South China Sea and the Pacific Ocean and separates Taiwan from the Philippines. It said the carrier group was expected to enter the Western Pacific. The military is keeping a close watch on developments and “exercising an
FIVE-YEAR WINDOW? A defense institute CEO said a timeline for a potential Chinese invasion was based on expected ‘tough measures’ when Xi Jinping seeks a new term Most Taiwanese are willing to defend the nation against a Chinese attack, but the majority believe Beijing is unlikely to invade within the next five years, a poll showed yesterday. The poll carried out last month was commissioned by the Institute for National Defense and Security Research, a Taipei-based think tank, and released ahead of Double Ten National Day today, when President William Lai (賴清德) is to deliver a speech. China maintains a near-daily military presence around Taiwan and has held three rounds of war games in the past two years. CIA Director William Burns last year said that Chinese President Xi Jinping
REACTION TO LAI: A former US official said William Lai took a step toward stability with his National Day speech and the question was how Beijing would respond US Secretary of State Antony Blinken yesterday warned China against taking any “provocative” action on Taiwan after Beijing’s reaction to President William Lai’s (賴清德) speech on Double Ten National Day on Thursday. Blinken, speaking in Laos after an ASEAN East Asia Summit, called the speech by Lai, in which he vowed to “resist annexation,” a “regular exercise.” “China should not use it in any fashion as a pretext for provocative actions,” Blinken told reporters. “On the contrary, we want to reinforce — and many other countries want to reinforce — the imperative of preserving the status quo, and neither party taking any
President William Lai (賴清德) yesterday said that China has “no right to represent Taiwan,” but stressed that the nation was willing to work with Beijing on issues of mutual interest. “The Republic of China has already put down roots in Taiwan, Penghu, Kinmen and Matsu,” Lai said in his first Double Ten National Day address outside the Presidential Office Building in Taipei. “And the Republic of China and the People’s Republic of China [PRC] are not subordinate to each other.” “The People’s Republic of China has no right to represent Taiwan,” he said at the event marking the 113th National Day of
RSS