–Europe Crisis Having ‘Pretty Significant’ Impact On US Economy
By Brai Odion-Esene
WASHINGTON (MNI) – Federal Reserve Chairman Ben Bernanke Tuesday
defended the central bank’s zero rate policy, arguing that the Fed has
kept interest rates at such historically low levels since late 2008 “for
a good reason.”
“Our economy is still in a fragile recovery, and low interest rates
are intended to help the economy recover and restore more normal levels
of employment and growth,” he said during a town hall event on financial
education hosted by the Fed.
Bernanke also said the sovereign debt crisis in the euro area, with
its combined impact on nervous financial markets and trade with the
United States, is slowing U.S. economic activity.
The Fed’s policymaking Federal Open Market Committee has said it
expects economic conditions will require the fed funds rate to stay
close to zero until late 2014, and some have accused the Fed of hurting
savers by keeps rates so low.
Bernanke countered that it is essential for savers and investors
that “the economy be strong overall.”
He argued that the assets they invest in — such as stocks,
corporate debt — are not going to perform well unless the economy is
strong.
“So the kind of return that you can get as investor, and as a
saver, depends on having a strong economy, and there’s really no
shortcut to that,” Bernanke said.
“That’s the reason why we have low interest rates now,” he
continued, “as a way of trying to restore that vitality that will give
investors higher returns in the future.”
As for Europe, Bernanke said the effects of the crisis on the
United States “are pretty significant.”
He said the turmoil across the Atlantic is reducing demand for U.S.
exports, and “concerns about the European situation have created lots of
stress and volatility in financial markets.”
Bernanke went on to describe the situation in Europe as “very
difficult,” especially in the absence of a fiscal union.
He said the stringent austerity measures being implemented by some
eurozone members has not only weakened their economies, but meant that
“most of Europe is now suffering from a much weaker economy.”
“The European continent, and particularly the eurozone … are
under a lot of economic and financial stress,” Bernanke said.
He acknowledged that there are other factors affecting the U.S.
economy, including fiscal issues, credit tightness and the housing
market.
But crisis in Europe “is one of the factors that is slowing the
economic recovery,” he said.
With the November elections looming on the horizon, Bernanke
stressed the importance of the Fed remaining free of political
influence, citing research that shows countries with independent central
banks have lower inflation rates and more stable economies.
He added that it is also important to have this degree of
independence because monetary policy tends to work with a lag and it
takes time for its full effects to be felt.
“Therefore you want decisions about monetary policy to be made by
people who are not looking at the short run, not looking at the election
a few months down the road but are looking at the longer term and saying
what’s right for the economy,” Bernanke said.
“We do try to make all of our decisions based on technical
analysis, based on what’s good for the economy, and not based on any
political considerations,” Bernanke said.
There is a “quid pro quo,” however for this level of independence,
the Fed chairman said. The Fed, he said, has to be accountable,
transparent and follow the framework given to it by Congress.
** MNI Washington Bureau: 202-371-2121 **
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