Bernanke said this approach “looks to be effective” already because stock prices rose and long-term interest rates fell when investors realized the Fed was preparing to launch the new program dubbed quantitative easing.
“Easier financial conditions will promote economic growth,” Bernanke said. Read full op-ed.
Concerns that the asset purchases will lead to inflation are overstated, Bernanke said.
The Fed’s first round of quantitative easing where the central bank purchased $1.7 trillion of mostly housing-related assets did not result in higher inflation, he said.
The Fed remains committed to price stability and is confident it can engineer an exit strategy at the appropriate time.
Economists at Goldman Sachs called Bernanke’s op-ed a “forceful justification” of the quantitative easing program.
Bernanke did not mention the impact of quantitative easing on the dollar, the Goldman team noted, “probably because he does not want to be seen -- either by the Treasury, which is responsible for dollar policy, or by foreign policymakers -- as pursuing an overtly weak dollar policy.”
Bernanke said the Fed could not solve all the economy’s problem on its own.
“That will take time and the combined efforts of many parties, including the central bank, Congress, the administration, regulators and the private sector,” he said.
But the Fed “could hardly be satisfied” with the unemployment rate near 10% and the inflation rate running under 2% and decided “further support was needed.”
(source:marketwatch.com)
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