Bernanke to Testify on Fed Exit Strategy on Feb. 10
Federal Reserve Chairman Ben S. Bernanke plans to testify before the House Financial Services Committee on Feb. 10 about the central bank’s plans to withdraw emergency stimulus from the U.S. economy, according to a committee memo to lawmakers on the panel.
Bernanke and his colleagues are trying to pull back unprecedented stimulus and lending programs without impeding efforts to sustain a recovery. The Fed upgraded its economic outlook last week and reaffirmed it will end liquidity backstops and a $1.25 trillion program to buy mortgage-backed securities.
“This is a delicate balancing act that must be done right or we risk significant damage to the economy,” said the Feb. 5 memo obtained by Bloomberg News. The hearing will examine the Fed’s options in unwinding emergency aid “while not causing inflationary fears, hurting job growth or stunting the fragile economy recovery underway.”
Bernanke will speak first at the hearing scheduled for 10 a.m. in Washington, according to the memo. Others scheduled to testify after Bernanke include John Taylor, a Stanford University economist and the creator of the so-called Taylor Rule for determining the appropriate level for interest rates, and Marvin Goodfriend, a professor at Carnegie Mellon University in Pittsburgh and former Fed economist.
Tools the Fed may use to unwind stimulus include paying interest on excess reserves, engaging in reverse repurchase agreements, offering term deposits to banks and selling the assets on its balance sheet.
Exit Strategy
Fed Vice Chairman Donald Kohn said in a Jan. 29 speech that the sequence of the central bank’s so-called exit strategy was “under active consideration.” Fed officials have not publicly outlined the order of steps they intend to take.
In a Jan. 27 statement, the Federal Open Market Committee repeated its pledge to keep interest rates low for “an extended period.” Since December 2008, the Fed has kept the benchmark lending rate in a range of zero to 0.25 percent.
The Fed is under pressure from Congress not to raise interest rates too soon.
U.S. Representative Barney Frank, a Massachusetts Democrat who chairs the House Financial Services Committee, has argued that the Fed’s regional bank governors should not be able to vote on interest rates. “That’s inappropriate. These are private citizens selected by other private citizens,” Frank said in an interview last week in Davos, Switzerland.
Hoenig Dissent
Kansas City Federal Reserve Bank President Thomas Hoenig dissented from the Fed’s statement last week because promising to keep rates low for an extended period is not appropriate as the crisis fades, he said.
Hoenig also said he is not willing to assume mortgage rates will rise significantly when the Fed’s purchases of mortgage- backed securities end.
“We are on the mend,” Hoenig said in an interview today with PBS Television’s Nightly Business Report. “The markets will provide credit in the mortgage market and other industries, which are every bit as important for the long-run health of the economy.”
The Fed held $2.25 trillion in assets as of Feb. 3, including $970.3 billion of mortgage-backed securities. The Fed plans to end its program to purchase mortgage-backed securities on March 31.
The Fed closed five of its special liquidity programs on Feb. 1 that were launched to stem the credit crisis sparked by the collapse of the U.S. mortgage market in 2007.
AP
Federal Reserve Chairman Ben S. Bernanke plans to testify before the House Financial Services Committee on Feb. 10 about the central bank’s plans to withdraw emergency stimulus from the U.S. economy, according to a committee memo to lawmakers on the panel.
Bernanke and his colleagues are trying to pull back unprecedented stimulus and lending programs without impeding efforts to sustain a recovery. The Fed upgraded its economic outlook last week and reaffirmed it will end liquidity backstops and a $1.25 trillion program to buy mortgage-backed securities.
“This is a delicate balancing act that must be done right or we risk significant damage to the economy,” said the Feb. 5 memo obtained by Bloomberg News. The hearing will examine the Fed’s options in unwinding emergency aid “while not causing inflationary fears, hurting job growth or stunting the fragile economy recovery underway.”
Bernanke will speak first at the hearing scheduled for 10 a.m. in Washington, according to the memo. Others scheduled to testify after Bernanke include John Taylor, a Stanford University economist and the creator of the so-called Taylor Rule for determining the appropriate level for interest rates, and Marvin Goodfriend, a professor at Carnegie Mellon University in Pittsburgh and former Fed economist.
Tools the Fed may use to unwind stimulus include paying interest on excess reserves, engaging in reverse repurchase agreements, offering term deposits to banks and selling the assets on its balance sheet.
Exit Strategy
Fed Vice Chairman Donald Kohn said in a Jan. 29 speech that the sequence of the central bank’s so-called exit strategy was “under active consideration.” Fed officials have not publicly outlined the order of steps they intend to take.
In a Jan. 27 statement, the Federal Open Market Committee repeated its pledge to keep interest rates low for “an extended period.” Since December 2008, the Fed has kept the benchmark lending rate in a range of zero to 0.25 percent.
The Fed is under pressure from Congress not to raise interest rates too soon.
U.S. Representative Barney Frank, a Massachusetts Democrat who chairs the House Financial Services Committee, has argued that the Fed’s regional bank governors should not be able to vote on interest rates. “That’s inappropriate. These are private citizens selected by other private citizens,” Frank said in an interview last week in Davos, Switzerland.
Hoenig Dissent
Kansas City Federal Reserve Bank President Thomas Hoenig dissented from the Fed’s statement last week because promising to keep rates low for an extended period is not appropriate as the crisis fades, he said.
Hoenig also said he is not willing to assume mortgage rates will rise significantly when the Fed’s purchases of mortgage- backed securities end.
“We are on the mend,” Hoenig said in an interview today with PBS Television’s Nightly Business Report. “The markets will provide credit in the mortgage market and other industries, which are every bit as important for the long-run health of the economy.”
The Fed held $2.25 trillion in assets as of Feb. 3, including $970.3 billion of mortgage-backed securities. The Fed plans to end its program to purchase mortgage-backed securities on March 31.
The Fed closed five of its special liquidity programs on Feb. 1 that were launched to stem the credit crisis sparked by the collapse of the U.S. mortgage market in 2007.
AP
