Bernanke: Funds Rates Must Rise 'At Some Point’

While credit conditions remain tight and the job market weak, accommodative policies will have to be removed “at some point,” Federal Reserve Board chairman Ben S. Bernanke said yesterday.

The financial crisis “dealt a severe blow to our economy from which we have only recently begun to recover,” Bernanke said, according to a prepared text of his speech delivered at the Economic Club of Washington, D.C.

“The improvement in financial conditions this year and the resumption of growth over the summer offer the hope and expectation of continued recovery in the new year,” the Fed chief said. “However, significant headwinds remain, including tight credit conditions and a weak job market.”

He noted that the central bank aggressively lowered the federal funds rate to stabilize the financial system and to support economic activity.

“At some point, however, we will need to unwind our accommodative policies in order to avoid higher inflation in the future,” Bernanke said. “I am confident we have both the tools and the commitment to make that adjustment when it is needed and in a manner consistent with our mandate to foster employment and price stability.”

While not offering any time frame on the removal of policy accommodation, Bernanke said: “Though we have begun to see some improvement in economic activity, we still have some way to go before we can be assured that the recovery will be self-sustaining.” 

“My best guess at this point is that we will continue to see modest economic growth next year — sufficient to bring down the unemployment rate, but at a pace slower than we would like,” he said.

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