Bernanke Optimistic On Economic Recovery

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Fed Chairman Ben Bernanke told lawmakers Tuesday the economy shows "tentative signs of stabilization." Nevertheless, he said, the Fed's "highly accommodative" monetary policy will need to stay in place for an extended period.

ROBERT SIEGEL, host:

This is ALL THINGS CONSIDERED from NPR News. I'm Robert Siegel in Washington.

MADELEINE BRAND, host:

And I'm Madeleine Brand in California.

Federal Reserve Chairman Ben Bernanke said today that the rate of decline in the U.S. economy has slowed significantly. But he told lawmakers that the Fed will continue to aggressively pump money into the economy until a recovery has clearly taken hold. Well, some wonder whether that might cause inflation later on.

NPR's John Ydstie has more.

JOHN YDSTIE: Chairman Bernanke's report to Congress didn't begin until 10 o'clock this morning. But members of the House Financial Services Committee had already gotten a preview of his main message that came in the form of an op-ed piece in today's Wall Street Journal. The article outlined how, when the time was right, the Fed would pull back the huge amount of stimulus it's injected into the economy to fight the recession.

Bernanke was responding to concerns in financial markets and on Capitol Hill that the Fed might leave the stimulus in place too long. That was troubling Florida Republican Bill Posey, as he questioned the Fed chief.

Representative BILL POSEY (Republican, Florida): Certainly, unless that money gets sucked back in - out of circulation, it's going to cause inflation. There's no denying it.

Mr. BEN BERNANKE (Chairman, Federal Reserve): It's just not sucked back in, but as I was describing, we have ways of sucking it back in.

Rep. POSEY: How?

YDSTIE: Bernanke went on to describe a variety of ways to pull the stimulus out of the economy. But he acknowledged the timing, knowing when to ease up on the accelerator, will be the tricky thing.

Mr. BERNANKE: It's a very difficult problem, and even though, you know, we have these unusual circumstances, it's really the same problem we always face, which you just pointed out, is picking the right moment to begin to tighten and picking the appropriate pace of tightening.

YDSTIE: But Bernanke was quite clear the Fed won't step on the brake anytime soon. Although there have been some recent glimmers of hope, the Fed chairman made clear he doesn't expect the economy to recover rapidly.

Mr. BERNANKE: Consumer sentiment, for example, has improved somewhat as the stock market has gone up, and as the outlook has looked better, and as the job situation has at least stopped deteriorating quite as quickly as it was. But, you know, I want to be clear that we have a very long haul here. Because even though if the economy begins to turn up in terms of production, unemployment is going to stay high for quite a while. And so it's not going to feel like a really strong economy.

YDSTIE: While the economy still needs the stimulus provided by the Fed and Congress, Bernanke warned that congressional spending associated with this crisis is unsustainable in the long run. He advised lawmakers to come up with a road map to reduce massive deficit soon. And he said the plan must deal with the rising cost of health care.

Mr. BERNANKE: A critical element of fiscal sustainability in the long term is the cost of health care. So whether we adopt a new program or reform, or whether we stick with the status quo, I do think we need to address that two-and-half percent faster than per capita income growth in health care costs.

YDSTIE: Bernanke also engaged the lawmakers in a discussion of financial regulatory reform. He defended the Fed's record as a consumer regulator under his watch. The Obama administration is proposing to strip the Fed of its consumer protection authority. Bernanke said the Fed would like to remain involved and has important expertise to offer in that area.

John Ydstie, NPR News, Washington.

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