The Currency Converter

US Dollar Exchange Rate News: The US economy grew at a modest annual rate

December 7th, 2010

In a rare television interview, Federal Reserve Chairman Ben Bernanke said that the Fed could end up buying more than the $600 billion in US government bonds it has committed to purchase if the US economy fails to respond or unemployment stays too high. But he also did not rule out stopping short of the total.

He added that the Fed will regularly review the policy and could adjust the amount of buying up or down depending on the economy’s path. Bernanke stated that the Fed’s actions are aimed at supporting what is still a fragile economic recovery, dismissing critics who argue the policy will lead to future inflation.

“This fear of inflation I think is way overstated,” Bernanke said in the interview aired on Sunday. “What we’re doing is lowering interest rates by buying Treasury securities,” he said, “and by lowering interest rates, we hope to stimulate the economy to grow faster. The trick is to find the appropriate moment when to begin to unwind this policy. And that’s what we’re going to do.”

Bernanke said it would take four to five years for the country’s unemployment rate, which rose to 9.8% in November to come down to what he called more “normal” levels of around 5% to 6%.

The US economy grew at a modest 2.5% annual rate in the three months ending September 2010 and more vigorous growth is needed to bring down unemployment. The interview follows Friday’s worse-than-expected US employment report. The increase in the unemployment rate to 9.8% has fuelled speculation that there could be further QE or QE3, which seems a little premature given the Fed is only 1 month into QE2.

Written by Tony Redondo

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