Below are highlights of remarks by Federal Reserve Chairman Ben Bernanke at a discussion on the economy and monetary policy at the University of Michigan.
BERNANKE ON INFLATION
"We have increased the monetary base, which is the amount of reserves that banks hold with the Fed. There are some people who think that is going to inflationary. Personally, I don't see much evidence of that. Inflation as I mentioned has been quite low. Inflation expectations remain quite well anchored....We have, I believe, we have all the tools we need to undo our monetary policy stimulus and to take that away before inflation becomes a problem."
BERNANKE ON THE NEED FOR GSE REFORMS
"I think the main area that has been put aside for the time being is the government-sponsored enterprises - Fannie Made and Freddie Mac, which were taken into receivership at the very beginning of the crisis because of losses they suffered on mortgages and because of their low levels of capital."
"So far, not too much progress has been made in that area," he said, adding that it "needs to be addressed."
BERNANKE ON DEBT CEILING'S SYMBOLIC VALUE
"It's got symbolic value I guess. No other countries in the world has this particular institution. The way to address it is to have a sensible plan for spending and a sensible plan for revenue and make a decision how big the government should be or how small it should. It would be a good thing if we didn't have it, but I don't think that's gonna happen."
BERNANKE "CAUTIOUSLY OPTIMISTIC" ON NEXT FEW YEARS
"I want to see our economy recover. I'd like to see a stronger labor market. I'd like to see fiscal policy addressed ... There are a lot of obviously difficult issues out there. But I do think things are moving, you know, not as fast as we would like, but in the right direction and I'm therefore cautiously optimistic about the next couple of years."
BERNANKE TRILLION DOLLAR COIN TO ADDRESS DEBT CEILING
"We didn't think this was the right way to deal with this problem. There are legal issues. There are policy issues. I think the right way to deal with this problem, as I said earlier, is for Congress to do what it is supposed to do and needs to do, and authorize an increase in the debt ceiling so we can pay our debts."
BERNANKE ON U.S. CONSUMER SENTIMENT
"Consumers are more optimistic ... As long as the fiscal policy thing isn't getting too messed up, the consumers seem to be a little bit more upbeat. So, there are some positives. But I want to be clear that while we've made progress, there's still quite a ways to go before we'll be satisfied."
BERNANKE ON HOUSING
"One of the key positives is housing. Now, for the first time since 2007, 2006, we are starting to see increases in production, rising house prices. That's going to affect household wealth. That's one positive factor that's going to help us have, I hope, a better year in 2013 and 2014."
BERNANKE ON SUCCESS OF QUANTITATIVE EASING
"So far, we think we are getting some effect. It is kind of early, but overall, it is clear that through the three iterations that you referred to, that we have succeeded in bringing longer-term rates down pretty significantly and clear evidence of that would be mortgage rates. As you know, a 30-year mortgage rate is something like 3.4 percent now. Incredibly low. And that in turn makes housing more affordable..."
"I think broadly speaking, we have found this to be an effective tool, but we are going to continue to assess how effective because it is possible that as you move through time and a situation changes that the impact of these tools could vary."
"But I think what we have decisively shown is the short-term interest rate getting down to zero...does not mean the Fed is out of ammunition. There are still things we can do, things we have done."
BERNANKE ON THE DEBT CEILING
"Raising the debt ceiling, which Congress has to do periodically, gives the government the ability to pay its existing bills. It doesn't create new deficits, it doesn't create new spending. Not raising the debt ceiling is like a family, which is trying to improve its credit rating saying, oh, I know how we can save money, we won't pay our credit card bills. It's very very important that Congress takes the necessary action to raise the debt ceiling to avoid a situation where our government doesn't pay its bills."
BERNANKE ON U.S. NOT BEING OUT OF THE WOODS
"I should hasten to say that we're not out of the woods because we are approaching a number of other fiscal critical watersheds coming up.
"We've got the funding of the government, we've got the so-called sequester, which is a set of automatic spending cuts that were delayed for two months as part of the fiscal cliff arrangement, and the infamous debt ceiling, which will come into play."