3:33am

Wed July 18, 2012
NPR Story

Fed Chief Gives Gloomy Economic Review

Originally published on Wed July 18, 2012 8:57 am

Transcript

STEVE INSKEEP, HOST:

It's MORNING EDITION from NPR News. Good morning, I'm Steve Inskeep.

RENEE MONTAGNE, HOST:

And I'm Renee Montagne.

We begin our program with two very different views of the economy. Two observers of the economy think the long-term looks very good, as we'll hear in a moment.

INSKEEP: Ben Bernanke says the short-term is looking a little worse. The Federal Reserve chairman is back on Capitol Hill today, after offering a gloomy review yesterday to lawmakers. He pointed the slowing growth in the first half of this year and said progress on unemployment is likely to be frustratingly slow.

MONTAGNE: The Fed chief refused to be pinned down on what the Fed might do to boost the economy, but as NPR's John Ydstie reports, Bernanke seemed to be leaning toward taking action.

JOHN YDSTIE, BYLINE: With its benchmark interest rate near zero, there's some question whether the Fed still has effective tools to boost growth. Bernanke told lawmakers it does.

(SOUNDBITE OF SENATE HEARING)

BEN BERNANKE: We are looking for ways to address the weakness in the economy should more action be needed to promote a sustained recovery in the labor market.

YDSTIE: Among the options would be another round of quantitative easing, in which the Fed injects money into the economy through purchases of Treasury bonds or mortgage backed securities. With the unemployment rate stuck above eight percent, Democrats on the committee, like New York Senator Charles Schumer, urged the Fed chairman to take action.

(SOUNDBITE OF SENATE HEARING)

SENATOR CHARLES SCHUMER: You certainly agree that we're having a much rougher time than we ever imagined, getting unemployment down.

BERNANKE: Yes, that's true.

SCHUMER: So get to work, Mr. Chairman.

YDSTIE: But Republicans on the committee generally opposed more Fed stimulus. They argued the central bank's policies are having little positive effect on growth and would eventually produce damaging inflation.

Bernanke also answered some tough questions about the unfolding scandal over the rigging of a benchmark interest rate called LIBOR set in London. Trillions of dollars worth of contracts around the world are based on LIBOR. Pennsylvania Republican Pat Toomey asked Bernanke why the Fed hadn't acted more aggressively after it discovered the manipulation in 2007.

(SOUNDBITE OF SENATE HEARING)

SENATOR PAT TOOMEY REPUBLICAN, PENNSYLVANIA: Why have we allowed it to go on the old way when we knew it was flawed for the last four year, with trillions of dollars of transactions?

BERNANKE: Because the Federal Reserve has no ability to change it.

PENNSYLVANIA: You have enormous influence over the institutions engaging in it.

YDSTIE: Bernanke said the Fed had asked the British Bankers Association, which oversees the rate, to make changes to improve its credibility, but the Association declined. The British bank Barclay's has already been fined more than $450 million for manipulating the rate. Other big banks are reportedly under investigation.

John Ydstie, NPR News, Washington. Transcript provided by NPR, Copyright National Public Radio.

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