This is How Ben Bernanke Defended The Fed’s Monetary Policy
Bernanke’s firm stance belies the fact that expert opinion on the subject of the central bank’s monetary policy is far from united. Minutes of the Federal Reserve’s January 29 and 30 policy meeting revealed that the institution itself was divided over the policy, and that revelation sparked uncertainty in financial markets last week.
A number of officials now feel that the potential risks posed by buying bonds could warrant a change in policy, or at the very least, a slowdown in asset purchases.
As a response to the financial crisis and the deep recession of 2007 to 2009, the Federal Reserve lowered official interest rates to effectively zero and bought approximately $2.5 trillion in Treasury and mortgage debt in order to push down interest rates and therefore boost investment. As the economy continued to languish, the central bank began purchasing $85 billion in bonds each month, a policy that has been carried into 2013. Until this recent round of questioning began, the Fed’s strategy was expected to be kept in place until the outlook for the labor market improved, which so far, it has not. The labor market is still showing an incomplete recovery; unemployment remains at a relatively high level, ticking up to 7.9 percent in January.
According to Bernanke, the danger to economic recovery is not the Federal Reserve’s policy, but Washington itself. In his testimony, he criticized lawmakers for not finding a compromise to avoid the federal spending cuts that are expected to lower economic growth by 0.6 percent this year.