Fed chief says interest rates will stay low

  • Follow Business

WASHINGTON --- Federal Reserve Chairman Ben Bernanke warned Monday that it's too soon to know whether the economic recovery will last and again pledged to hold rates at record-low levels for an "extended period."

The Fed chief's speech to the Economic Club of Washington made clear he thinks the economy will struggle even as it recovers from the recession. He said the economy confronts "formidable headwinds" -- including a weak job market, cautious consumers and tight credit.

Those forces "seem likely to keep the pace of expansion moderate," he said.

The central bank has leeway to keep rates low because inflation is under control and is expected to stay tame because of the economy's weakness. Some private forecasters even fear that the recovery could fizzle late next year as government stimulus fades.

Asked about prospects for such a "double dip" recession, Mr. Bernanke said he could not guarantee it won't happen. He stuck with his forecast for a moderate recovery but said a "vigorous snapback" is less likely.

Mr. Bernanke said he expects "modest" economic growth next year. That should help push down the nation's unemployment rate -- now at 10 percent -- "but at a pace slower than we would like," he acknowledged.

Under one Fed forecast released last month, the jobless rate would remain high next year -- ranging from 9.3 to 9.7 percent. The Fed has warned that it could take five or six years for the job market to return to normal.

To nurture the recovery, the Fed has kept rates at record low near zero for a year. The central bank is expected to leave rates at those levels at its meeting Dec. 15-16.

By doing so, the Fed hopes to entice people and businesses to boost spending, which would aid the recovery.

When asked about rates, Mr. Bernanke joked, "Well, they can't go much further down."

He went on to repeat the Fed's pledge to keep rates at record lows for an extended period.

"That remains where we are, but we're going to have to continue to look at the economy," Mr. Bernanke said.

William Dudley, the president of the Federal Reserve Bank of New York, in a separate speech, also said rates should be kept "exceptionally low for an extended period." Mr. Dudley said "the economy is still weak, and the unemployment rate is much too high."

STOCKS GIVE UP EARLY GAINS

NEW YORK --- Even the prospect of interest rates staying low couldn't keep buyers in the stock market.

Stocks ended little changed Monday, having given back a brief afternoon gain that followed comments from Federal Reserve Chairman Ben Bernanke.

His remarks sent the dollar down because low rates make a currency less attractive, and that gave stocks a boost since a lower dollar can add to profits for U.S. companies that do business overseas. The gains evaporated later, however, as the dollar pared its losses.

Many traders have closed their books on the year and are wondering whether incremental improvements in the economy will be able to support more stock market gains next year.


Top headlines

Fire Department raises sought

The Augusta Fire Depart­ment will present a pay raise proposal for firefighters and administrators to the county’s public safety committee Monday.
Search Augusta jobs