The Federal Reserve could end up buying more than the $600 billion in U.S. government bonds it has committed to purchase if the economy fails to respond or unemployment stays too high, Fed Chairman Ben Bernanke said.
In a rare televised interview, Bernanke told the CBS program "60 Minutes" 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 percent in November, to come down to what he called more "normal" levels of around 5 percent to 6 percent.
Asked if the central bank could go beyond the $600 billion of bond buys announced at its November meeting, Bernanke said: "Oh, it's certainly possible. It depends on the efficacy of the program. It depends, on inflation. And finally it depends on how the economy looks," he said.
The U.S. economy grew at a modest 2.5 percent annual rate in the third quarter, and more vigorous growth is needed to bring down unemployment.
The "60 Minutes" interview is as part of a broader effort to raise the Fed chairman's public profile in order to counter critics of Fed policy — both in Washington and within the central bank itself.
Not Printing Money
The decision to offer further monetary stimulus at a time overnight borrowing costs are already effectively at zero and the banking system is awash with $2.3 trillion in Fed-created credit has proven controversial both at home and abroad.
Many economists, some Republican lawmakers, and a small but vocal minority of top officials within the Fed worry that the central bank's actions are unlikely to do much to spur economic growth with borrowing costs already unusually low.
Instead, they worry the massive bond purchases will lead to distortions in financial markets, potentially sparking asset bubbles in unexpected places. Some also fear, as Charles Plosser of the Philadelphia Fed has argued, the expansion of reserves could create the "kindling" that will spark inflation in the future.
But Bernanke continued to argue firmly against that view.
"It's a very bad development," he said. "It's creating two societies."
He stressed that the issue of long-term unemployment is a major concern. Over 40 percent of unemployed Americans have been jobless for six months or more, the highest reading on record.
The ability of interest rate policy to affect such complex matters remains an open question. But Bernanke appears willing to use monetary policy to its fullest extent in trying.
"People who are unemployed for such a long time ... their skills erode. Their attachment to the labor force diminishes and it may be a very, very long time before they find themselves back in a normal working position."
The last time Bernanke appeared on "60 Minutes" was in March 2009, just as the worst phase of the global financial crisis was beginning to subside.
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