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Ben Bernanke: Fed Is Looking For ‘Sustained Improvement’ Of Economy

Filed by KOSU News in Business.
September 13, 2012

Federal Reserve Chief Ben Bernanke said the new monetary policy announced today is aimed at getting the U.S. economy moving for good.

After a meeting of the Federal Open Market Committee, the Fed announced that it would spend $40 billion a month on mortgage-backed securities in an effort to stimulate the economy and drive the the unemployment rate down.

It’s a policy commonly referred to as quantitative easing and this is the third round of the policy the Fed has taken on. There was a twist, this time however, because the Fed made an open-ended commitment. Bernanke was asked several times what measures the Fed would use to decide how long to continue with the securities purchases.

“We want improvement to be sustained improvement,” Bernanke said. “We’re not looking for wiggles in the data.”

Bernanke was also pressed about the kind of effect this policy would have on Main Street. Essentially, one reporter said, this policy translates to trickle down economics. The banks are given more money and the Fed hopes that loans will trickle down to the rest of America.

“This is a Main Street policy because we’re trying to create employment,” he said, explaining the tools available to the Federal Reserve are tied to monetary policy, so they can’t, for example, create a program that lends directly to consumers.

But he said, this policy will hopefully nudge home prices up, bring interest rates down and edge stock investments up.

Demand, he said, is a problem and “if people feel better … they may spend more.”

Ultimately, though, Bernanke admitted that Fed policy can only do so much.

“This is not a panacea,” he said. In fact, he said, the tools at the hands of Fed may not be strong enough to contain the kind of economic shock that the Congressional Budget Office projects will happen if Congress doesn’t act this year and allows the expiration of the Bush-era tax cuts and across-the-board cuts to take place Jan. 1.

Bernanke also fielded a question about making this kind of policy change during an election year.

“We have tried very, very hard to be non-partisan and apolitical,” Bernanke said, adding that the Fed’s decisions are made solely on the basis of economic data not politics. [Copyright 2012 National Public Radio]

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