Ben Bernanke Lobbies for Low Interest Rates
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(Image Credit: ABC News)
Ben Bernanke, chairman of the Federal Reserve, told Congress today that although there has been improvement in the U.S. economy, Congress’ fiscal policy must be placed on a “sustainable path” to keep long-term interest rates low.
He testified before the House of Representatives’ Committee on the Budget this morning, saying fiscal policy should aim to decrease debt relative to national income or at least stabilize it.
“Attaining this goal should be a top priority,” he said in a prepared speech called the “Economic Outlook and the Federal Budget Situation.”
Assuming that most expiring tax provisions are extended and that Medicare’s physician payment rates hold steady, he said, the budget deficit would be more than 4 percent of GDP in 2017, if the economy is close to full employment then.
The Federal Reserve’s Open Market Committee last week announced it expects to keep the federal funds rate at zero to 1/4 percent at least through 2014, saying the housing sector remained depressed and business investment has slowed. The federal funds rate is the rate at which banks lend to each other overnight.
Rep. Paul Ryan, R-Wis., chairman, and other committee members, warned Bernanke that the Federal Reserve might be reaching beyond its monetary role into fiscal policy.
“Our intention was to provide useful background and in all cases looked at both sides of the issue,” Bernanke said in response to one question about the Fed’s role in budgetary policy. “We recognize and have no doubt it’s Congress that has to make those decisions. ”
Ryan also asked whether the Federal Reserve was risking higher inflation by keeping interest rates low. Bernanke said inflation appeared contained at less than 2 percent for the next couple years. If investors lose confidence in the nation, interest rates, including treasury rates are going to go up, Bernanke told Congress.
Bernanke said the Fed was aware of the effect of low interest rates on savers, a question frequently posed to Bernanke because the federal funds rate has remained near zero since 2008.
Investors are closing watching the Federal Reserve for signs of additional stimulus, or a third round of quantitative easing, known as QE3.
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Because a credit bubble will fix this.
Posted by: snewsom2997 | February 2, 2012, 12:17 pm 12:17 pm
Fed unlikely to raise interest rates until at least 2014
…DON’T COUNT ON IT – with the right President and Congress elected in Nov, bailout bernanke will be FIRED and the feckless fed will be stopped from creating destructive economic bubbles by manipulating interest rates contrary to the free market.
Posted by: TeaPartyNation | February 2, 2012, 12:38 pm 12:38 pm
Faith has already been lost in this nation. Bernake is wrong. There is inflation. Seniors cannot live off their interest, will go broke and then what? Interest rates are extremely low…and people cannot buy nomes and aren’t because they don’t have jobs, money, etc. One thing lowering them for awhile but not for years and years.
Posted by: Barb | February 2, 2012, 12:40 pm 12:40 pm
BTW: Bush was the one who put Bernake in there! Bernake is doing a lousy job.
Posted by: Barb | February 2, 2012, 12:52 pm 12:52 pm
Barb: You are correct; however, Obama extended his appointment. I definitely am no fan of President Bush; however, the interest rate on my CD’s was 5.25% when he left office. The last one that I renewed is 1.75%. I will not vote for President Obama again, because I cannot watch my wealth slip away like this. I am too old to move my savings into the stock market. I am not asking for a 10% return. All I want is for the free market to dictate interest rates.
Posted by: savethemiddleclass | February 2, 2012, 1:17 pm 1:17 pm
Save the Middle Class: I agree. Where did you get 1.75? or did you have to put it in a five year CD?
I do not know if Pres. Obama or any president has much power over what the Fed/Bernake wants to do with interest rates. I would like to hear from Pres. Obama what he thinks of this. It is like the social security freeze…the president has no power over it, if there is no inflation, no raise, which is ridiculous because we all know there is inflation. Yes we got higher rates when Bush was in office but that is when this economy started downhill…much blame to go around…mortgage companies, wall street, etc. My thing is that there is no one in the GOP that looks or talks like he knows what to do. Romney’s healthcare is the same as Obama’s. They ALL promise us the moon, stars and sun and then…..there is too much fraud and corruption and campaigns are allowed to build millions of dollars in money, then when the candidate wins he owes the contributors. It ALL stinks! Think they will get rid of lobbyists and make term lilmits? when pigs fly! :–)
Posted by: Barb | February 2, 2012, 1:35 pm 1:35 pm
Barb: I got the 1.75 at my state credit union. And yes, I had to lock it up for five years. I may be totally wrong (it would not be the first time), but I believe that President Obama is 100% behind Bernake’s actions. He wants the rates this low to help those who have problems with their mortages. While I feel for these people, it seems that those like myself who realized that there was a tomorrow, planned for that day, saved some out of every paycheck (and did without many of my wants and some of my needs to do so), lived responsibly, and entered into a mortgage for much less than I could afford are paying the penalty for this stuff. I have watched the GOP debates very closely and I do believe that Romney knows what to do. Again, I may be fooled. I certainly was fooled with Obama. Romney’s health care is not like the President’s in that Romney’s remained between the citizen and the insurance company. The state government got involved only in that a citizen was forced to buy insurance or pay a fine. The President’s is run by the federal government. I am for everyone having to buy insurance; otherwise, I am going to have to pay higher rates for those that do not buy it. I am not for federal control over my health care, however. There is a very fine line, I know, but I prefer what Gov. Romney advocates. I am with you on the term limits. I was not four years ago, but I have changed my mind completely on that.
Posted by: sa vethemiddleclass | February 2, 2012, 2:02 pm 2:02 pm
If this president is behind this, he is wrong. I’m so sick of both sides. I just cannot believe anything they say anymore. They are being held hostage by contributors. I too saved my money and do not want to end up supporting someone who spent wildly not caring if they had enough money to buy a home, etc. I have friends who are “broke” thru their own doings, they gamble and do not save a penny and then cry they have no money. I blame Cheney esp. and the previous administration for getting us into this mess and I blame the Dems for not doing more to get us out and both sides for bickering like children. They are all crooked and there is so much fraud. I do like this president but there are things he does I do not approve of but the good outweighs the bad…I believe Congress both sides was against him from day one. It’s a pity because we are all suffering. They are campaigning like mad, collecting tons of money…it’s not right. I’m sick of hearing them talk and all the mudslinging ads both sides. I have a dvr and will tape shows to watch because I just cannot stand to listen to any of them anymore. I know I should but what’s the use? No matter who gets in the middle class suffers. It’s all about greed and money! Sorry to be so negative but…..:–(
Posted by: Barb | February 2, 2012, 2:16 pm 2:16 pm
Save the Middle: BTW 1.75% for five years is better than next to zero for five years! I have done the same thing with 1-2 year CDs at 1% and 1.25.
Posted by: Barb | February 2, 2012, 2:18 pm 2:18 pm
Mr. Ben Bernanke’s genius action of keeping the key interest rate close to zero since 2008 has not helped the recovery of our economic woes a bit and he is stubborn enough to pledge that he will continue keeping the key interest rate close to zero until 2014. What a clueless and incompetent FR Chairman that Mr. Obama hand-picked true legend (only) in his own mind. For that mistake alone, I will not vote for him again ever!
Posted by: Get_Down | February 2, 2012, 2:29 pm 2:29 pm
GetDown: I believe Bush appointed him and Obama kept him on. Regardless, he’s an idiot who has to go before this country is really down. Again, both sides are corrupt and until we stop letting them spend millions on campaigns nothing will change. Votes are bought…period.
Posted by: Barb | February 2, 2012, 2:32 pm 2:32 pm
The Federal Reserve Board destroyed America’s economy with low interest rates. U.S. Banks offer no competition to international Banks. Other countries charge a higher rate of interest and accept loan applications from corporations. The United States is a debtor and welfare nation.
Posted by: dustin95sc | February 2, 2012, 3:10 pm 3:10 pm
Posted by: Barb—–Actually 1.75% is less than zero, you are losing money at that point because inflation is outstripping your saving, twice as fast. Unless you make more than inflation in interest you are losing money. The fed has set the system up so everybody spends or invests in stocks all they have, money goes down the drain if they don’t. Until this changes, saving is a fools errand, negative interest works just like positive interest, at least until your account hits zero.
Posted by: snewsom2997 | February 2, 2012, 3:32 pm 3:32 pm
Snewsom: I have done quite well with CDs even at a lower rate. I have had friends who put money in stocks and lost a lot on the principal. I have some stocks that are good and pay nice dividends but I would never put all my eggs in one basket. I have a friend who told me “you can’t make money on CDs, you have to invest in high paying stocks”. Well she is now completely broke and I have a very nice and safe nest egg. And I believe eventually they will raise the interest rates. I’d rather have my money and less of it and be safe, than have more and end up losing it.
Posted by: Barb | February 2, 2012, 3:39 pm 3:39 pm
Interest rates are being kept artificially low because the Government wants to keep borrowing on a massive scale. Imagine the interest payments on the national debt if rates go up. That’s all they are concerned with and those who have tried to save be damned. Housing has not, and will not, come back even with the low rates and the consumer is stuck with double digit credit cards. Yeah, this administration loves the middle class – NOT!!
Posted by: Give Me a Break | February 2, 2012, 3:43 pm 3:43 pm
Posted by: Barb—-CD’s are good as long as the interest rate is greater than inflation, that is the problem with everything except volatile stocks and commodities, most do not return greater than inflation. The big determinant will be whether The US can keep its reserve currency status, if that goes, even insured FDIC accounts will not be safe.
Posted by: snewsom2997 | February 2, 2012, 3:49 pm 3:49 pm
I am not the sharpest knife in the drawer but I really find it surprising that the average person can’t see that we will all sink into the abyss. First your dollars won’t earn any interest due to the Fed Policy of low interest rates. Then inflation makes what money you have worth even less and then the Fed is printing money as fast as they can to devalue the dollar even more. By the year 2014 you will be able to heat your house with your money by burning it as it will have no other value by then.
Elections matter ……kiss the middle class good-bye
Posted by: Seasoned | February 2, 2012, 6:18 pm 6:18 pm
Like trying to blow up a flat tire with your mouth.
Posted by: newcountryman | February 2, 2012, 6:38 pm 6:38 pm
I still have dozens of gold coins I’ve bought over the years including 20 double eagles. Diversification is the key. I’ve also kept a nest egg with CD’s. I also have stocks and bonds. Don’t chase the latest hot market tip like…….facebook.
Posted by: newcountryman | February 2, 2012, 6:42 pm 6:42 pm
“Bernanke said the Fed was aware of the effect of low interest rates on savers…” +++++ He must also be aware that the Seniors, rather than the very wealthy, the bankers, etc. are taking the hit to keep the economy solvent. So is Boehner, Reid, Obama, Romney, etc. and not a single one of them has called for a “stimulus” for retirees.
Posted by: The_Mick | February 3, 2012, 12:40 am 12:40 am
I can’t believe our politicians and the morons who believe them. If we pull back liquidity so that savers and senior citizens money grows in value that is called Deflation, and it will crash the economy. Savers are people who pull their money out of the economy, they are not even contributing by investing their money intelligently. They want the impossible, because they not only want their savings to grow in value without taking any risk, inherently collapsing the economy for everyone who is actually participating in the economy, and then they expect the economy to still somehow magically support medicare and social security payments for them, they expect the companies that will no longer exist to pay their pensions. They really need to listen to Bernanke on this one. The Republicans and anyone who believes them are completely clueless when it comes to economics.
Posted by: Dugese | February 3, 2012, 1:48 am 1:48 am
We’re having trouble recovering from the worst liquidity crisis in nearly 100 years. By railing against the Fed adding liquidity the Republicans are truly showing their sociopathic side.
Posted by: Dugese | February 3, 2012, 1:50 am 1:50 am
Posted by: Dugese—Economies do shrink, and they should shrink, nothing grows forever.
Posted by: snewsom2997 | February 3, 2012, 4:05 pm 4:05 pm
Posted by: Dugese | February 3, 2012, 1:48 am 1:48 am—-I didn’t know I had a Constitutional Responsibility to spend every dollar I earn. You just specified why the safety-nets are unsustainable, they require everybody to spend every dollar they have, and then a bunch they don’t, and that following generations be bigger and spend even more money they don’t have. That is not how an economy works, people demand stuff and other supply that’s it.
Posted by: snewsom2997 | February 3, 2012, 4:09 pm 4:09 pm