Bernanke Defends Fed MBS buy-back Program

Federal Reserve Chairman Ben Bernanke on Monday delivered a broad defense of the U.S. central bank’s controversial bond-buying stimulus plan, saying it is necessary to support a flagging economic recovery.

Bernanke pushed back against accusations that the Fed’s policy is laying the groundwork for inflation, enabling the government to run large budget deficits, undercutting the dollar and hurting savers.

He said that while the country’s unusually weak economic performance had forced the Fed to resort to less conventional tools after lowering interest rates to effectively zero, the Fed’s goals of price stability and maximum sustainable employment have not changed.

“These goals mean, basically, that we would like to see as many Americans as possible who want jobs to have jobs, and that we aim to keep the rate of increase in consumer prices low and stable,” Bernanke told the Economic Club of Indiana.

In response to the financial crisis and deep recession of 2007-2009, the Fed slashed overnight borrowing costs to rock bottom and bought some $2.3 trillion in mortgage and Treasury securities in an effort to keep down long-term rates and stimulate investment.

Last month, the central bank said it would buy $40 billion in mortgage-backed securities every month until the jobs outlook improved substantially as long as inflation remained contained.

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza