In testimony before Congress today, Federal Reserve Chairman Ben Bernanke said that record low rates would be needed for an “extended period” to ensure the economic recovery is firmly entrenched before any move is made to tighten credit. The Fed Chairman also noted that employment gains continue to lag, providing further need for economic stimulus to continue for the foreseeable future.
However, Bernanke did note that “at some point”, there will be the need to remove excess credit from the economy, saying that when that time arrived, the Fed would likely boost the rate it pays banks on money held in reserve at the Fed. Increasing the rate on reserves would entice banks to hold more cash on reserve, thereby limiting funds available for lending and eventually leading to higher retail lending rates.
Source: Associated Press
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