WASHINGTON (MNI) – The following is an excerpt from Federal Reserve
Chairman Ben Bernanke’s press conference Wednesday.
QUESTION: I hear alot of conversations on a liquidity trap in the
U.S., it was a concept in Japan after the bubble burst in the Lost
Decades. Is the U.S. economy in a liquidity trap and if that happens,
how could the economy escape?
BERNANKE: Well the U.S. economy is in a situation where short term
interest rates are close to zero, meaning that the Federal Reserve can’t
add monetary accommodation by cutting short-term interest rates which is
the usual approach. It has been a theme of my own work, including work I
did on Bank of Japan, that central banks are not out of tools once the
short-term interest rates hit zero. There are additional steps that can
be taken and we have demonstrated both through communication techniques
and guidance about future policy, something the Japanese please have
done as well And also through asset purchases, something the Bank of
Japan has also done. Central banks do have an ability to provide
financial accommodation and support the recovery when short-term
interest rates are close to zero. That being said, as I previously
mentioned, these nonstandard policies are less well-understood and do
have costs and risks, but at the same time I think they can be effective
in helping the economy.
** MNI Washington Bureau: 202-371-2121 **
[TOPICS: M$U$$$,MMUFE$,MGU$$$,MFU$$$,MT$$$$]