Bernanke Defends Fed's Low-interest-rate Policies

By MARTIN CRUTSINGER

WASHINGTON (AP) ⿿ Facing criticism from Republican lawmakers, Chairman Ben Bernanke stood behind the Federal Reserve's low-interest-rate policies Wednesday and sought to reassure members of Congress that the central bank has a handle on the risks.

In his second day of testimony on Capitol Hill, Bernanke told members of the House Financial Services Committee that the Fed's bond purchases are needed to boost a still-weak economy and that they have helped create jobs for average Americans.

The bond purchases are intended to lower long-term interest rates. That encourages more borrowing and spending, which generates growth.

Still, some Republicans warned that by continually pumping more money into the financial system, the bond purchases could eventually ignite inflation.

"We have gone too far in monetary policy and the monetary easing, and it is in this member's opinion time to pull back," said Rep. Gary Miller, R-Calif.

Bernanke said the Fed is weighing the costs and benefits of its bond purchases. He noted that the Fed has a dual mandate: to both maximize employment and maintain low inflation.

His remarks during his semiannual monetary report to Congress largely repeated comments he made a day earlier to a Senate panel.

The Fed chairman argued that the Fed's low-interest-rate policies are giving crucial support to an economy still burdened by high unemployment. He also acknowledged the risks of keeping rates low indefinitely. But he expressed confidence that such risks pose little threat now and gave no signal that the Fed might shift away from those policies.

The aggressive program to buy $85 billion a month in Treasurys and mortgage bonds had kept borrowing costs low, he said. And that, in turn, has helped strengthen sectors such as housing and autos, he said. Still, unemployment remains high at 7.9 percent.

Bernanke rejected a suggestion by Rep. John Campbell, R-Calif., that the Fed's policies were mainly helping the federal government with its borrowing needs and big banks and foreign governments.

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