WASHINGTON, Feb. 18, 2009 -- Federal Reserve chairman Ben Bernanke today defended the Fed's actions to lift the country out of the economic crisis and vowed to do whatever it takes to get the nation back on its feet.
"In the United States, the Federal Reserve has done, and will continue to do, everything possible within the limits of its authority, to assist in restoring our nation to financial stability and economic prosperity as quickly as possible," Bernanke said in a speech at the National Press Club.
"Extraordinary times call for extraordinary measures," he said later.
It is these extraordinary measures, such as the administration's attempt to reignite the flow of credit, that Bernanke said he considers imperative to rescue the nation from recession.
Noting that the unemployment rate is "very likely" to rise "above eight, for sure," Bernanke said, "If we can take strong and aggressive action, including the Fed's action to try to improve credit markets, I think we can break the back of this thing and we can begin to see improvements in 2009. If we fail to take adequate actions, then the situation will continue to deteriorate and then unemployment would obviously be higher in that case."
However, these extraordinary measures have also prompted concerns about taxpayer risk and higher inflation, but Bernanke today attempted to ease these worries.
"At this point, with global economic activity weak and commodity prices at low levels, we see little risk of unacceptably high inflation in the near term," Bernanke said. "Indeed, we expect inflation to be quite low for some time."
To soothe concerns about taxpayer risk, Bernanke noted, "For the great bulk of Fed lending, the credit risks are extremely low."
As more and more layoffs take place, people are spending less and saving more at the very time when the economy needs spending to increase. Save a little, Bernanke told consumers, but we need you to spend.
"Somebody once called this the Augustinian principle, which says something like, 'Let me be moral but not quite yet,'" Bernanke said to laughter from the crowd. "Let me be a big saver, and so on, but in the short run, we need in the country to provide enough spending and enough support to avoid a more serious decline in the economy."
Still, it will take confidence, the Fed chief noted, before consumers start snapping up houses again.
"We have done our part to lower mortgage rates," he said. "But we're going to need to see not only lower mortgage rates, but more confidence in the economy before people start to go out to buy houses in large numbers."
With so many ailing banks continuing to suffer under the weight of bad assets, Bernanke was asked if he supported nationalization.
"Whatever actions may need to be taken at one point or another, I think there's a very strong commitment on the part of the administration to try to return banks or keep banks private or return them to private hands as quickly as possible," he replied.
Bernanke defended the government's past decisions to rescue AIG and to back JP Morgan Chase's takeover of Bear Stearns, cautioning that, "In assessing the financial risks of those transactions, once again, one must also consider the very grave risks our nation would have incurred had public policy makers not acted in those instances."
One regret, Bernanke said, was the failure of Lehman Brothers.
"I very much regret the failure of Lehman," he said. "We worked very hard to try to avoid it and the consequences, I think, certainly while there were many factors that led to the intensification of the financial crisis in September and the slowing of the economy, clearly that was part of the shock."
Also today, the Fed chief outlined two initiatives to improve the transparency of the Fed's balance sheet and programs: a new Web site to bring together "in a systematic and comprehensive way, the full range of information" from the Fed, complete with explanations and analyses; and a committee to review the Fed's publications and disclosure policies.
Finally, on a lighter note, Bernanke was asked if Rodriguez, who just admitted to steroid use, will still get into the Hall of Fame.
Despite being forthcoming on other prickly questions, "I love baseball" was all the diplomatic Fed chief would offer in reply.