Bernanke Sees 'Extended’ Period of Accommodation

With the economy sluggish and inflationary pressures limited, monetary policy remains focused on helping the economy recover, and “a highly accommodative stance of monetary policy will be appropriate for an extended period,” Federal Reserve Board chairman Ben Bernanke told Congress yesterday.

“However, we also believe that it is important to assure the public and the markets that the extraordinary policy measures we have taken in response to the financial crisis and the recession can be withdrawn in a smooth and timely manner as needed, thereby avoiding the risk that policy stimulus could lead to a future rise in inflation,” Bernanke testified before the House Committee on Financial Services, according to prepared text released by the Fed.

“The FOMC has been devoting considerable attention to issues relating to its exit strategy, and we are confident that we have the necessary tools to implement that strategy when appropriate.”

Bernanke also told Congress that supervision and regulation of the financial system needs to be more effective. He said such efforts must focus on the system as a whole, not individual institutions, and must include “formal mechanisms for identifying and dealing with emerging systemic risks.”

Another suggestion the Fed chief offered was strengthening “capital and liquidity standards for financial firms, with more stringent standards for large, complex, and financially interconnected firms.”

Bernanke also backed an “enhanced bankruptcy or resolution regime,” to let “financially troubled, systemically important nonbank financial institutions to be wound down without broad disruption to the financial system and the economy.”

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