Bernanke Says Fed Prepared to Ease Further if Needed
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Gold and stocks are rising in early action Wednesday following comments from Federal Reserve Chairman Bernanke confirming that the Fed is ready to step in with additional easing should conditions warrant such a move.
"The Federal Reserve remains prepared to respond should economic developments indicate that an adjustment in the stance of monetary policy would be appropriate," he said.
"On the one hand, the possibility remains that the recent economic weakness may prove more persistent than expected and that deflationary risks might reemerge, implying a need for additional policy support," he continued.
After starting higher, stocks moved to the day's highs of the day on the comments. The Dow last traded up 136 points to 12,583.
Gold, which tapped new all-time highs ahead of the announcement, extended gains. Gold last traded up $18.70 to $1581. The day and all-time high on gold is $1583.70.
If further easing in necessary, Bernanke said one option would be to provide more explicit guidance about the period over which the federal funds rate and the balance sheet would remain at their current levels.
He said another approach would be to initiate more securities purchases or to increase the average maturity of our holdings. The Federal Reserve could also reduce the 25 basis point rate of interest it pays to banks on their reserves, thereby putting downward pressure on short-term rates more generally.
If conditions in the economy improves, a less-accommodative policy would be needed, Bernanke stated. He notes the FOMC has reached a broad consensus about an exit strategy.
One of the first step toward tightening would be the Committee would be ceasing the reinvestment of principal payments on its securities. At the same time or sometime thereafter, the Committee would modify the forward guidance in its statement, he said. Subsequent steps would include the initiation of temporary reserve-draining operations and the increases in the federal funds rate target.
"The Federal Reserve remains prepared to respond should economic developments indicate that an adjustment in the stance of monetary policy would be appropriate," he said.
"On the one hand, the possibility remains that the recent economic weakness may prove more persistent than expected and that deflationary risks might reemerge, implying a need for additional policy support," he continued.
After starting higher, stocks moved to the day's highs of the day on the comments. The Dow last traded up 136 points to 12,583.
Gold, which tapped new all-time highs ahead of the announcement, extended gains. Gold last traded up $18.70 to $1581. The day and all-time high on gold is $1583.70.
If further easing in necessary, Bernanke said one option would be to provide more explicit guidance about the period over which the federal funds rate and the balance sheet would remain at their current levels.
He said another approach would be to initiate more securities purchases or to increase the average maturity of our holdings. The Federal Reserve could also reduce the 25 basis point rate of interest it pays to banks on their reserves, thereby putting downward pressure on short-term rates more generally.
If conditions in the economy improves, a less-accommodative policy would be needed, Bernanke stated. He notes the FOMC has reached a broad consensus about an exit strategy.
One of the first step toward tightening would be the Committee would be ceasing the reinvestment of principal payments on its securities. At the same time or sometime thereafter, the Committee would modify the forward guidance in its statement, he said. Subsequent steps would include the initiation of temporary reserve-draining operations and the increases in the federal funds rate target.
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