By Greg Robb, MarketWatch
WASHINGTON (MarketWatch) — Federal Reserve Board Chairman Ben Bernanke attempted Monday to answer some of the fierce criticism and public unease facing the Fed’s third round of bond purchases, known as quantitative easing or QE3.
In a speech to the Economic Club of Indiana in Indianapolis, Bernanke tried to de-mystify the purchases, saying the basic monetary policy strategy “is the same as it has always been.”
“The difference is that, with short-term interest rates nearly at zero, we have shifted to tools aimed at reducing longer-term interest rates more directly,” he said.
Recognizing some of the public concern over the Fed’s policy, Bernanke noted that even a star player of the Washington Nationals baseball team has asked him for the “scoop on quantitative easing.”
Last month, the Fed moved to start open-ended buying of $40 billion of mortgage bonds per month until there is a sustained improvement in labor market conditions.
Bernanke stressed the Fed has not abandoned its mission to keep inflation under control.
“We expect inflation to remain low for the foreseeable future,” he said.
“The Federal Reserve’s price stability record is excellent and we are fully committed to maintaining it,” he said.
Bernanke stressed that the Fed’s pledge to keep rates low until mid-2015 was not a forecast of a weak economy over the next three years.
Instead, the message is “as long as price stability is preserved, we will take care not to raise rates prematurely,” he said.
Taking on criticism from leading Republicans, especially Sen. Bob Corker, of Tennessee, Bernanke said the Fed is also not “enabling” Congress to duck big questions on fiscal policy.
Corker has argued that the Fed’s low interest rates have just made it cheaper for the government to borrow.
“I find this argument unpersuasive,” Bernanke said flatly.
If the Fed were to raise rates it would widen the deficit and make the choices facing Congress only more difficult and painful, he said.
Bernanke denied the Fed is “monetizing” the federal debt by printing money for the government to use.
He stressed that the Fed is only buying Treasurys temporarily. And the central bank has created reserves which have not been translated into more money in circulation.
Bernanke also addressed the low interest rates that are hurting savers.
He said the financial crisis has dropped interest rates all around the world.
While the Fed is aware that savers are hurt by current low rates, the central bank has to try to get the economy stronger, he noted.
“Only a strong economy can create higher asset values and sustainably good returns for savers,” he said.
Greg Robb is a senior reporter for MarketWatch in Washington.
