Fed Chief Hedges Remarks on Possible New Stimulus

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remarks before the Senate Banking Committee on Thursday, Mr. Bernanke said that the central bank was not currently ready to embark on a third round of government bond-buying to stimulate the economy. “We’re not proposing anything today,” Mr. Bernanke said. “The main message I want to leave is that this is a serious situation. It involves a significant loss of human and economic potential.” The new comments were interpreted by investors as a slight retreat from his testimony on Wednesday before the House, when Mr. Bernanke said the Fed still had tools to spur growth, and that “we have to keep all the options on the table.” The major indexes, which had been up on Wednesday and Thursday morning, fell after Mr. Bernanke’s testimony. “Bernanke walked the market back a bit” by saying the Fed wasn’t prepared to start another bond-buying program, said Michael Gapen, senior United States economist at Barclays Capital and a former Fed economist. “The market overly interpreted the chairman’s remarks yesterday.” Still, Mr. Bernanke did not totally discount the prospect of such a program. Should the economy turn out to be weaker than expected, the central bank may provide more monetary stimulus, Mr. Bernanke said Thursday. A third round of quantitative easing, referred to as QE3, is an option if a recent economic slowdown persists and deflationary forces re-emerge, he said. Mr. Bernanke said that the Fed faced different conditions today than it did last August, when he signaled a second round of large-scale asset purchases, which ended last month. At that time, the economy was in danger of stalling, he said, and the Fed was concerned the country might experience deflation, a widespread and prolonged drop in prices, wages and the values of assets like homes and stocks. “Today the situation is more complex,” Mr. Bernanke told lawmakers, adding: “Inflation is higher. Inflation expectations are close to our target. We are uncertain about the near-term developments in the economy. We’d like to see if, in fact, the economy does pick up, as we are projecting.” Senator Richard C. Shelby of Alabama, the committee’s senior Republican, told Mr. Bernanke that he had concerns that additional bond purchases would fuel inflation. To read more visit: The New York Times]]]]> ]]>