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Bernanke Hints That The Economy Still Needs Help

Filed by KOSU News in Business.
May 22, 2013

In the nearly impenetrable language that comes with his job, Federal Reserve Chairman Ben Bernanke told Congress on Wednesday that even though the economy is doing better, the central bank needs to keep giving it a boost.

The key passage from his prepared testimony:

“Recognizing the drawbacks of persistently low rates, the FOMC actively seeks economic conditions consistent with sustainably higher interest rates. Unfortunately, withdrawing policy accommodation at this juncture would be highly unlikely to produce such conditions. A premature tightening of monetary policy could lead interest rates to rise temporarily but would also carry a substantial risk of slowing or ending the economic recovery and causing inflation to fall further. Such outcomes tend to be associated with extended periods of lower, not higher, interest rates, as well as poor returns on other assets. Moreover, renewed economic weakness would pose its own risks to financial stability.”

Translation: The Fed thinks it’s still too soon to take its foot off the accelerator. So it will keep interest rates low, in a bid to spur borrowing and spending.

As the Fed chairman was speaking, the National Association of Realtors was releasing new data that underscore the sense that the economy is on the mend. It reported that sales of existing homes rose 0.6 percent in April form March and were up 9.7 percent from the level of April 2012.

The association’s chief economist, Lawrence Yun, said sales would have been even stronger if not for “tight access to credit and limited inventory” of homes.

There will be more word about how the economy is doing this afternoon when the Fed releases the minutes of its April 30-May 1 meeting of policy makers. [Copyright 2013 NPR]

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