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Bernanke defends Fed's low-rate stance

(Xinhua)

08:52, February 08, 2012

WASHINGTON, Feb. 7 (Xinhua)-- The U.S. Federal Reserve Chairman Ben Bernanke defended the low-rate stance when he testified to the Senate Budget Committee Tuesday.

When questioned about unintended consequences of maintaining low interest rate, mainly the shrink of return on savings and greater risk taking, Bernanke said although low interest rate would erode the earnings on savings, savers don't necessarily hold treasury bonds, they may also hold corporate debts, stocks or a variety of other securities, and performance of securities depend importantly on the strength of economy.

Bernanke also argued that risk taking "to some extent" would move people from very conservative positions to riskier positions, which would be helpful for the economic recovery. "But we won't go too far," he added.

His remarks also answered the recent public skepticism about the negative effects of the super low interest rate. The Fed pledged in its Jan. 25 statement to keep the key interest rate at a record low near zero until at least late 2014.

Moreover, Bernanke kept his tone on the economy. "The U.S. economy has been gradually recovering from the recent deep recession, but the pace of the recovery has been frustratingly slow," he said in the prepared testimony. He urged lawmakers to reduce the long-term budget deficit, but noted sharp changes in fiscal policy in a short time would hurt economy.

In response to a question, Bernanke said the 8.3 percent unemployment rate "understates" the weakness of labor market, pointing out a lot people are underemployed and more than 40 percent of the unemployed have been jobless for more than six months. "We still have a long way to go before the labor market can be said to be operating normally," he said, adding that the Fed is not going to seek for high inflation when it tries to advance the employment.

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