- Associated Press - Sunday, December 5, 2010

Federal Reserve Chairman Ben S. Bernanke is stepping up his defense of the Fed’s $600 billion Treasury bond-purchase plan, saying the economy is still struggling to become “self-sustaining” without government help.

In a taped interview with CBS’ “60 Minutes” that aired Sunday night, Mr. Bernanke also argued that Congress shouldn’t cut spending or boost taxes given how fragile the economy remains.

The Fed chairman said he thinks another recession is unlikely but warned that the economy could suffer a slowdown if persistently high unemployment dampens consumer spending. The economy is growing at an annual pace of around 2.5 percent — far too slow to reduce unemployment.

Mr. Bernanke has said he hopes the Fed’s bond-buying program will help lift stock prices, in part because lower yields on bonds would cause some people to shift money into stocks. Higher stock prices would boost the wealth and confidence of individuals and businesses. Spending would rise, lifting incomes, profits and economic growth.


But when asked in the interview whether the recovery is self-sustaining, Mr. Bernanke responded: “It may not be. It’s very close to the border.” Given the economy’s still-weak growth, he said: “We’re not very far from the level where the economy is not self-sustaining.”

Ben S. Bernanke, chairman of the Federal Reserve, says Fed is prepared to buy more than $600 billion in Treasury bonds over the next eight months if it decides the economy needs the boost. (Bloomberg)
Ben S. Bernanke, chairman of the Federal Reserve, says Fed is prepared ... more >

Mr. Bernanke’s appearance Sunday night is part of a public-relations blitz he’s mounted since the Fed announced the program Nov. 3. In private and public appearances, Mr. Bernanke has sought to explain and defend the program to ordinary Americans, investors and lawmakers on Capitol Hill.

His efforts have included an Op-Ed article in The Washington Post and discussions with students in Jacksonville, Fla., economists in Jekyll Island, Ga., business people in Columbus, Ohio, central bankers in Europe and members of the Senate Banking Committee.

Criticism has come from both home and abroad.

Officials in China, Germany, Brazil and other countries have argued that the Fed’s plan is a scheme to give U.S. exporters a competitive edge by keeping the value of the dollar weak. A weak dollar makes U.S. goods cheaper abroad and foreign goods more expensive in the U.S.

It’s rare for a sitting Fed chairman to grant an interview, whether for broadcast or print. But this was Mr. Bernanke’s second appearance on “60 Minutes.” His first was in March 2009. At the time, he was facing anger over Wall Street bailouts and rising anxiety about the economy.

Critics, from Republicans in Congress to some officials within the Fed, say they fear the Fed’s intervention could spur inflation and speculative buying on Wall Street while doing little to aid the economy.

On other issues in the “60 Minutes” interview, Mr. Bernanke:

• Argued that unemployment would have been far higher — “something like it was in the Depression, 25 percent” — had the Fed not provided extraordinary aid to Wall Street firms, banks and other companies to ease a credit crisis.

• Said it could take four or five more years for unemployment, now at 9.8 percent, to fall to a historically normal 5 percent or 6 percent.

• Reiterated that the Fed is prepared to buy even more than $600 billion in Treasury bonds over the next eight months, should it decide the economy needs the fuel of even lower interest rates. That purchase came on top of plans announced that same day by the New York Federal Reserve Bank to reinvest $300 billion in maturing mortgage securities owned by the Fed in Treasury bonds.

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