Federal Reserve

Fed chairman Bernanke sees hope in interest rate rises

Fed Reserve chairman points to increases as indication stimulus efforts are working

PUBLISHED : Thursday, 28 February, 2013, 12:00am
UPDATED : Monday, 30 May, 2016, 2:05pm

Federal Reserve Chairman Ben Bernanke said recent increases in some interest rates may signal the economy is gaining vigour.

"The fact that interest rates have gone up a bit is actually indicative of a stronger economy," Bernanke said in Washington yesterday in response to questions from members of the House Financial Services Committee.

The fact that interest rates have gone up a bit is actually indicative of a stronger economy

He said it indicated the Fed's stimulus was working.

Bernanke also said the central bank's easing policies are helping to improve demand for homes and cars, and that the housing market is recovering.

He was continuing his semi-annual testimony to Congress after speaking yesterday in the Senate.

The world's largest economy has shown signs that it will resume growth after gross domestic product unexpectedly shrank 0.1 per cent in the fourth quarter.

Reports today showed that orders for US durable goods excluding transportation gear jumped in January by the most in a year and contracts to buy previously owned homes climbed more than forecast.

"We are getting some traction in the housing market, in automobiles and other durable goods" and to "some extent in investment" and commercial real estate, Bernanke said.

He said the central bank has the "tools" necessary to scale back record stimulus and avert a rise in inflation expectations.

The Federal Open Market Committee "remains confident that it has the tools necessary to tighten monetary policy when the time comes to do so", Bernanke said.

Bernanke and his FOMC colleagues are debating whether to curtail $85 billion in monthly bond-buying amid concern the Fed's record $3.1 trillion balance sheet may encourage excessive risk-taking by investors and complicate the Fed's exit from easing.

Several participants at the January 29-30 meeting said the Fed should be prepared to vary the pace of purchases as the economic outlook changes, according to minutes released last week.

"Highly accommodative monetary policy has several potential costs and risks, which the committee is monitoring closely," Bernanke said in his prepared remarks.

"Inflation is currently subdued, and inflation expectations appear well anchored; neither the FOMC nor private forecasters are projecting the development of significant inflation pressures," he said.