WASHINGTON (Reuters) - The following are highlights from a House Financial Services Committee hearing on Thursday with Federal Reserve Chairman Ben Bernanke testifying on unwinding the central bank’s emergency programs to support the economy.
“I think we would like to bring the balance sheet back to something consistent to where it was before the crisis, which means enough to accommodate Americans’ demand for currency plus a modest amount of reserves in the banking system, and that would suggest something under a $1 trillion.”
“There’s certainly been a big drop in the demand for credit because of weakness in the economy. But there are certainly creditworthy small business that cannot obtain credit, and again, that’s been an important priority of the Federal Reserve. We are certainly working with the banks on this issue.”
“My concern is that our projections, whether they come from the administration or from Congress or from outside analysts, still show deficits between, say, 2013 and 2020, of between 4, 5, 6, 7 percent of GDP, which will, if that happens, cause the ratio of debt outstanding to our GDP to rise to very high levels. I think while that’s still some time in the future, the risk exists that even today, investors or creditors might become concerned about our ability to maintain a sustainable fiscal position.”
“At its meeting last week, the FOMC maintained its target range for the federal funds rate at 0 to 1/4 percent and indicated that it continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period. In due course, however, as the expansion matures, the Federal Reserve will need to begin to tighten monetary conditions to prevent the development of inflationary pressures. The Federal Reserve has a number of tools that will enable it to firm the stance of policy at the appropriate time.”
“We have emphasized that both the closure of our emergency lending facilities and the adjustments to the terms of discount window loans are responses to the improving conditions in financial markets. They are not expected to lead to tighter financial conditions for households and businesses and hence do not constitute a tightening of monetary policy, nor should they be interpreted as signaling any change in the outlook for monetary policy.”