The Federal Reserve agrees with Treasury’s “strong dollar” policy and the way to get there is to have a strong economy, Fed chairman Ben Bernanke said in a PBS network special airing in the coming week.
The Sunday night videotaping showed a contained and unflustered Bernanke enthusiastically answering questions from moderator Jim Lehrer and audience members, reassuring them that growth will return, slowly, and that inflation will be controlled.
He repeated his urging that government be given a way to wind down in an orderly way failing financial institutions now too big to fail, in part, through a change in the bankruptcy code. And he again urged Congress and the Obama administration to shrink future deficits with a plan for a return to “fiscal sanity.”
He reminded viewers that controlling health care costs is a very important part of controlling deficits in the future.
“As far as the Fed and the dollar is concerned, the Fed supports the Treasury’s strong-dollar policy. We think the dollar should be strong,” he said. “And the best way we think to get a strong dollar is to get a strong economy. When the economy’s strong then there’s a lot of good investment opportunities, foreigners want to invest here, and that causes the dollar to rise.”
Bernanke added: “Our whole strategy right now is to get the economy out of the doldrums and back on to a growth path that will attract foreign funds and will get the dollar and keep it strong.”
Summing up, he said: “So that’s our strategy, a strong economy for a strong dollar.”
The unprecedented extended Fed showcase is being excerpted on “The News Hour with Jim Lehrer Monday and Tuesday nights, and aired in its one-hour entirety on Wednesday night. Since the financial newswires were permitted to listen to the videotaping, the markets could react to Bernanke’s words immediately.
On inflation, a subject that came up several times, he stuck to what has been a consistent message barrage from him and other Fed governors in recent days that the Fed has the tools and the will to keep inflation under control. Bernanke had driven home that message in an op-ed in the Wall Street Journal the morning he debuted his semiannual report to Congress last week.
The Fed monitors prices across the board, and, he said, “We also look at the amount of slack in the economy.” With 9.5% unemployment and with product markets “as weak as they are, it’s very hard for firms to raise their prices and for workers to raise their [salaries], ask for higher wages. In fact we’re seeing prices and wages being very, very moderate.”
So, he said, “Given the softness of the global economy, that except possibly for fluctuations in energy prices, we expect for the next couple of years that inflation will be quite low.”
With stimulus spending and near-zero interest rates helping the economy grow, Bernanke said: “It will be very important for the Fed to unwind, raise interest rates, bring that credit back, bring the money back, so we don’t have inflation problems down the road. We are very confident that we have all the tools we need to take those steps at the appropriate time so that we don’t make the mistake of having inflation, ultimately.”
“You’ve got to navigate between inflation, deflation, recession and too-rapid expansion,” he said. “We have our tools and we’re going to be watching very carefully to try to make sure inflation stays low.”
— Market News International