Bernanke: US economy 'improving'

Central bank chairman says relaxed monetary policy will prevent massive job losses.

    Bernanke said that the Federal Reserve is confident of avoiding dramatic increases in inflation [EPA]

    Aggressive policies

    "In light of the substantial economic slack and limited inflation pressures, monetary policy remains focused on fostering economic recovery," he said.

    "A highly accommodative stance of monetary policy will be appropriate for an extended period."

    The Federal Reserve has already set the US interest rate at close to zero in an attempt to encourage consumer spending, while pursuing aggressive economic stimulus policies.

    The central bank's programme of massive lending has concerned some economists and policy analysts who say inflation could rise rapidly once the economy begins to recover.

    Dramatic increase

    But Bernanke said that the Fed is working on a plan to prevent the trillion dollar economic stimulus programme from sparking a dramatic increase in inflation.

    The effort to kickstart the US economy in the wake of the credit crunch and the recession "can be withdrawn [after the economy recovers] in a smooth and timely manner as needed, thereby avoiding the risk that policy stimulus could lead to a future rise in inflation," he said.

    The Federal Open Market Committee "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 said an increase in the rate of inflation that the Fed pays to banks who place deposits in the central bank could also help arrest inflation.

    By raising the amount of interest it pays, the Fed can encourage banks to deposit excess funds at the central bank, to maintain liquidity.

    SOURCE: Agencies


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