Highlights from Bernanke's testimony

WASHINGTON (Reuters) - The following are highlights from Federal Reserve Chairman Ben Bernanke’s testimony on the economy to the congressional Joint Economic Committee on Tuesday.


“The Federal Reserve and other central banks regularly buy and sell government debt in open market operations, and we’ve been doing that for many years. We purchased -- we announced a plan to purchase $300 billion in order to try to provide broader liquidity and try to help private credit markets. That’s our objective. We think it’s been beneficial, because we’ve seen improvements in mortgage markets and corporate bond markets and so on. We’re not trying to target a particular interest rate. Again, our objective is to provide more liquidity to the system and to help private credit markets, and I think that it has had some benefit.”


“I’m heartened by the international commitment to avoid protectionism. It was a big element of the G20 meetings in London, for example, and the G7 and G20 meetings we just had in Washington. So it’s very, very important to thwart protectionism, it’s important if possible to make continued progress on the World Trade Organization talks. But it’s always going to be a concern, because people are going to be looking for scapegoats and sometimes imports are part of that. So I think it is very important for all of us. We learned from history that you know, if we start to block imports, others will do the same and we’ll just all be poorer as a result.”


“I don’t think there is any prospects of any big shift in portfolio preferences of foreign investors right now. The U.S. debt is very liquid, very safe and there is a big demand for it, frankly. During the crisis there was a lot of purchases of debt by foreigners because they thought that was the safest asset around. The acquisition of U.S. debt by foreigners does reflect our trade deficit, our current account deficit, which I have argued is part of the reason for the whole crisis because all the money flowing in at relatively low interest rates stimulated a lot of lending, some of which did not turn to work out so well. That’s part of problem. Then of course we have issues related to the fiscal outlook, where we need to make sure we keep the confidence of not just foreign investors, but domestic investors as well by proving a fiscal plan for stabilizing our debt level. I think we will be fine, but we do need to address both the current and fiscal deficits as part of our overall macro policies.”


“It’s obviously not our intention or desire to have long-term government ownership of banks. It’s not desirable. It’s not efficient. It’s not good for the economy. And so the top priority will be to get banks on a path where they can pay back and get out of the situation where they are partially owned by the government.

“In terms of day-to-day management, I think the Treasury may well want to set broad policies, for example on lobbying or dividend payments or things of that sort, which is appropriate. But it’s not really a good idea for the government to try to manage day-to-day business decisions and for that purpose we have to have management there that we think is effective and let them make those decisions.”


“The loss of jobs and the deterioration of the labor market is one of the most distressing aspects of this whole episode and we’ve already seen about 5 million jobs lost. The forecast we have is for the economy in terms of growth to begin to turn up later this year but initially not to grow at the rate of potential. Which means that unemployment...will continue to rise in 2010. We think the unemployment rate will probably peak in early 2010 and then come down relatively slowly after that. Currently we don’t think its going to get to 10 percent, we’re somewhere in the 9s but clearly that is way too high.”


“I don’t think the commercial real estate market is out of line in terms of prices as the housing market is. But it is currently weakening. Rents are down, vacancies are up and a lot of real-estate owners are having difficulty refinancing. The Fed is trying to get the financial system working again and we have included commercial mortgage-backed securities in our so-called TALF program, which we hope will get investors interested (in) this market and get it going again.”