US Fed well-prepared for stimulus fallout: Bernanke
January 18, 2014, 12:00 am TWN
WASHINGTON--Outgoing Federal Reserve Chairman Ben Bernanke said Thursday that the U.S. central bank is well-prepared to handle any risks from its stimulus, such as higher inflation and asset bubbles.
Speaking two weeks before he ends his tenure leading the Fed — which included facing the deepest economic crisis since the 1930s — Bernanke again dismissed fears of a well of inflationary pressure building up from five years of easy money policies.
He also said the Fed did not believe that stocks and property prices were overblown despite last year's huge rises in both markets.
“We developed all of the tools that we need to manage interest rates, to tighten monetary policy, even if the balance sheet stays where it is or gets bigger,” he said at a Brooking Institution discussion of central banking.
He was referring to the trillion dollars-plus worth of quantitative easing bond purchases by which the Fed has held down long term interest rates.
“That means that we can run monetary policy in a normal way and avoid any risks of undue inflation or other such problems,” he said.
“While, of course, it's always possible for the Fed to raise rates too late and too early and so on, I think we have plenty of tools now at this point.”
Bernanke, whose last day at the Fed after eight years as chairman comes on Jan. 31, said he does not consider inflation a concern, pointing to consumer price index data Thursday that showed prices remain tame, with inflation only hitting 1.5 percent last year.
“Those who have been saying, you know, for the last five years that we're just on the brink of hyperinflation, I think I would point this to this morning's CPI number.”
As for overinflated assets, Bernanke said the Fed is “extraordinarily sensitive” to that risk after the financial crisis, which began with the bursting of a massive property price bubble.
But rather than to try to pop bubbles with the blunt tool of higher interest rates, Bernanke said in the first line the Fed is using supervision, regulation and other microeconomic-type tools to be sure the threat is minimal.
“The markets currently seem to be broadly within the metrics of market valuation, seem to be broadly within historical ranges,” he said, adding that the financial system is strong and banks well-capitalized.