Bernanke Walks Fine Line on Rates, Dollar

Fed Chair Pledges to Keep Interest Rates at Super-low Levels But Also Vows to Keep Close Eye on Sliding Dollar

(CBS/AP)  Federal Reserve Chairman Ben Bernanke on Monday said the central bank will keep a close eye on the sliding U.S. dollar even as he pledged anew to keep interest rates at record-lows to nurture the economic recovery.

In remarks to the Economic Club of New York, Bernanke engaged in a delicate dance.

He made clear Fed policymakers will keep rates at super-low levels. Yet through his words, Bernanke is also trying to bolster confidence in the dollar without actually raising rates, a move that could short-circuit the fragile recovery.

Economists say a free-fall in the value of the dollar is remote but can't be entirely dismissed.

Although low interest rates can put additional downward pressure on the dollar, they are needed to encourage American consumers and businesses to spend more and fuel the economic turnaround.

"We are attentive to the implications of changes in the value of the dollar," Bernanke said in rare remarks about the greenback. The Fed, he said, will continue to "monitor these developments closely."

Although commodity prices — such as oil — have risen lately, that pickup likely reflects a revival in global economic activity and the recent depreciation of the dollar, Bernanke said. Even so, the Fed chief predicted inflation probably will remain "subdued for some time."

That gives the Fed leeway to hold rates at record-low levels for an "extended period," he said, repeating a pledge made at the Fed's meeting earlier this month.

Economists expect the Fed will hold rates near zero at its next meeting on Dec. 15-16 and into part of next year to help the recovery gain traction.

Bernanke predicted the economy should continue to grow next year, but he warned of "important headwinds" that will restrain the recovery, including a weak job market and tight credit for small businesses and households.

Those forces "likely will prevent the expansion from being as robust as we would hope," he said.

After a record four straight losing quarters, the economy started to grow again in the July-September period at a pace of 3.5 percent. Government-supported spending on homes and cars drove the rebound, raising questions about the staying power of the recovery once that assistance fades.

Bernanke said the rebound reflected more than "purely temporary factors" and predicted growth would continue into next year.

But he cautioned there is uncertainty about how the economy will evolve next year, and warned that "future setbacks are possible."

One of the biggest threats hanging over the recovery is rising unemployment.

The nation's unemployment rate bolted to 10.2 percent in October. It marked just the second time in the post-World War II period that the jobless rate topped 10 percent. Some economists think it could rise as high as 11 percent by the middle of next year before started to gradually drift down.

Bernanke said the unemployment rate "likely will decline only slowly" if economic growth remains "moderate" as he expects.

Because jobs are likely to remain scarce for some time, consumers — critical shapers of overall economic activity — will be cautious about spending, Bernanke said.

Banks dealing with the fallout from soured commercial real estate loans also could slow progress on efforts to get credit flowing more freely again, the Fed chief said. And credit difficulties will limit the ability of some businesses to expand and hire.

"Overall a number of factors suggest that employment gains may be modest during the early stages of the expansion," Bernanke said.

The Obama administration has done nothing to halt the dollar's slide. The sagging greenback has helped sales of U.S. exports because it makes it less expensive on foreign markets.

But a disorderly drop in the dollar could ignite a new economic crisis in the U.S., prompting investors to dump their dollar holdings and driving up domestic interest rates.

China, the No. 1 lender to the United States, which has racked up a record $1.42 trillion budget deficit, has expressed concerns that the falling dollar threatens the value of its existing U.S. holdings.

Bernanke said the Fed's commitment to the underlying strengths of the U.S. economy, "will help ensure that the dollar is strong and a source of global financial stability."

[jasonsanyoko]

One more note. Even if, as some scholars debate, the Federal Reserve is a Constitutional Institution as delegated by the congress to fulfill congressional duties, it is now an unlawful governing body. When congress enacted the Federal reserve act, they assumed responsibility for the oversight of the institution by which delegated powers of currency valuation currently reside (The Fed). The Fed repeatedly refuses to grant congressional oversight of their monetary policy to the congress, thereby nullifying their powers as a quasi governmental institution. If that still doesn't convince look up the coinage act of 1792. It has never been repealed. Support HR 1207 and S 604 and AUDIT THE FED!

[jasonsanyoko]

It's time we end the control of our monetary policy by elite offshore bankers and Goldman Sachs. It's time to audit the fed, end it, and restore the spirit of the law, which as in the U.S. Constitution (Article I, Section 8) explicitly gives Congress the power over money and the regulation of its value.

[rightbehind]

Tell that to walmart. It pays its employees in corporate kingdom debit cards.

[stevador39]

THE FEDERAL RESERVE NEEDS HAVE ITS CONTROL BY WALL STREET EXPOSED. THE ECONOMY OF THE U.S. HAS BEEN TURNED OVER TO THE CRIMINAL GAMBLERS OF WALL STREET. BEN BERNANKE IS WALL STREETS STOOGE.

[anti-global3]

we need a president that is willing to take drastic measures to fix the economy. I am wondering who Bernanke is really looking out for.
I would tell him and the public you have 6 months to turn things around. There had better be jobs and whatever is done better benefit the middle class the most.
If you fail we execute you on TV. I think this would motivate him and if not him I guarentee the next in line would be high stepping to get things turned around to benefit tthe middle class.

[rightbehind]

I trust Bill Bernanke more than any I can remember to date. This guy appears to care about the country instead of an ideology. I have lived long enough to know how this country arrived in the condition that it's in. The smartest thing the voting public could do is to send republicans and republicrats packing.