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Bernanke: Bond buys an option if economy sours
WASHINGTON (AP) — Federal Reserve Chairman Ben S. Bernanke said Wednesday that the Fed is open to another round of bond purchases to lower long-term interest rates and boost growth if the job market doesn’t improve.
The Fed has completed two such programs, known as quantitative easing, since the start of the Great Recession. It bought more than $2 trillion in Treasury bonds and mortgage-backed securities, expanding its portfolio to more than $2.8 trillion.
“Additional asset purchases would be among the things that we would certainly consider if we need to take additional measures to strengthen the economy,” Mr. Bernanke said.
But investors seemed disappointed that the Fed didn’t take such action after its meeting. Stocks were mostly flat before the news conference started. They fell sharply after Mr. Bernanke started answering questions.
The Dow Jones industrial average fell more than 80 points in the final hour of trading, and broader indexes also declined.
“I still think that monetary policy has the capacity to strengthen the economy by easing financial conditions,” he said.
Mr. Bernanke disagreed. He said the purchases boosted growth and removed the threat of deflation, a period of falling prices that the United States last experienced during the Great Depression of the 1930s.
Mr. Bernanke also said Europe’s debt crisis has affected the U.S. economy, but he said U.S. policymakers were taking steps to make sure financial institutions could withstand any shocks from the Continent. He specifically mentioned recent stress tests conducted on America’s largest banks.
“It is important to be prepared for any further problems that might emerge from Europe,” Mr. Bernanke said.
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