Fed Chairman Ben Bernanke said Thursday that record-low interest rates are still needed to support the U.S. economy and that the Fed will be ready to tighten credit “at the appropriate time.”
“The economy continues to require the support of accommodative monetary policies,” Mr. Bernanke said in testimony to the House Financial Services Committee. “However, we have been working to ensure that we have the tools to reverse, at the appropriate time, the currently very high degree of monetary stimulus.”
According to Mr. Bernanke, the timing of interest-rate increases and the unwinding of special liquidity programs will depend on financial developments and how the economic recovery develops.
“As the expansion matures, the Federal Reserve will need to begin to tighten monetary conditions to prevent the development of inflationary pressures,” Bernanke said in his remarks. “We have full confidence that, when the time comes, we will be ready to do so.”
Mr. Bernanke also said that the Fed would be able to drain the huge bank reserves via reverse repos.
“The use of reverse repos and the deposit facility would together allow the Federal Reserve to drain hundreds of billions of dollars of reserves from the banking system quite quickly, should it choose to do so,” he said.