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 Bernanke said the Great Recession made it essential for the Fed
to become more publicly transparent so it could explain why record-low interest
rates were needed to support the economy.
The recession meant that the Fed's communications had to evolve in ways he
didn't envision when he became chairman in 2006, Bernanke said. Still, he became
leader with a long-held view that a less secretive Fed was in the public's
interest.
"I believed then, as I do today, that transparency in monetary policy enhances
public understanding and confidence," Bernanke said in his remarks at the annual
dinner of the National Economists Club.
Some critics have argued that the Fed's efforts to provide more information to
the public have sometimes confused more than clarified the central bank's
intentions.
In his comments, Bernanke endorsed remarks Janet Yellen made last week at a
Senate hearing on her nomination to succeed him. Yellen, now vice chair, said
the surest path to normal rate policies will be for the Fed to keep doing all it
can to promote a robust recovery.
Bernanke's remarks Tuesday and Yellen's last week suggest that the Fed has no
plans to scale back its $85-billion-a-month in bond purchases when it next meets
Dec. 17-18. The bond purchases are intended to keep long-term borrowing rates
low to spur spending and economic growth.
"The economy has made significant progress since the depths of the recession,"
Bernanke said. "However, we are still far from where we would like to be, and,
consequently, it may be some time before monetary policy returns to more normal
settings."
Bernanke's remarks had something of the tone of a valedictory address. He
reviewed, and broadly defended, the many unorthodox decisions the Fed made under
his guidance as it confronted the worst financial crisis and recession since the
1930s.
"We have had to contend with the persistent effects of the seizing-up of the
financial system, the collapse of housing prices and construction, new financial
shocks in Europe and elsewhere, restrictive fiscal policies at all levels of
government, and, of course, the enormous blows to output and employment
associated with the worst U.S. recession since the Great Depression," Bernanke
said.
In response to these challenges, Bernanke noted that the Fed cut its key
short-term rate to a record low near zero in December 2008 and left it there. It
then launched programs to buy Treasury and mortgage bonds to try to lower
long-term rates to energize the economy.
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Those efforts have driven the Fed's investment portfolio to nearly
$4 trillion — more than four times its level before the financial
crisis struck in the fall of 2008.
Critics have raised concerns that the size of the Fed's bond
holdings risks inflating asset bubbles in stocks or real estate and
triggering market instability. But Bernanke said the bond purchases
were essential given the severity of the recession and high
unemployment.
He said that while the bond purchases pose risks, the Fed thinks the
greater risks remain elevated unemployment and lingering economic
fragility.
In his speech and during a question period after his remarks,
Bernanke defended his announcement last June that the central bank
could begin trimming back its bond purchases before the end of the
year as long as the economy kept strengthening and producing more
jobs.
This announcement jolted financial markets and sent stock prices
tumbling for a brief period and pushed interest rates higher.
Bernanke blamed part of the rate increase on a mistaken view in
markets that the Fed would begin tightening credit policies sooner
than investors had anticipated. He said that he believed investors
now have a better view of the Fed's resolve to keep supporting the
economy after the central bank passed up chances at recent meetings
to start reducing the bond purchases.
Bernanke, who has yet to reveal what he plans to do after leaving
the Fed when his term ends on Jan. 31, noted in response to a
question that he had worked as an academic studying many of the
issues he confronted as Fed chairman. Bernanke was a highly regarded
economics professor at Princeton before joining the Fed.
"I look forward to writing, speaking and having a little more time
to contemplate some interesting issues," Bernanke told the audience.
[Associated
Press; MARTIN CRUTSINGER]
Copyright 2013 The Associated
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