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Ben Bernanke outlines strategy to withdraw US stimulus

Category: Business

Published: 10th Feb 2010 19:45:40

The chairman of the Federal Reserve, Ben Bernanke, began on Wednesday to outline the central bank's strategy for withdrawing its stimulus money.

During the crisis the Fed greatly expanded the credit available to banks to encourage lending, and the new measures would reverse that.

But he stressed any changes were still months away to prevent jeopardising the weak recovery.

When and how to withdraw support is a major concern for leading economies.

One suggestion for reducing the money supply included in Mr Bernanke's statement to a Congressional committee was to pay the banks a higher interest rate on certain deposits at the Federal Reserve.

That then should lead to tighter credit conditions and higher interest rates.

The theory is based on the view that banks would then leave more of their money at the Fed because of the higher returns on offer - making it less attractive to lend out to businesses and consumers unless they, too, paid a higher interest rate to match the Fed's.

Months from action

Mr Bernanke said the proposals would only be implemented if the right economic and financial conditions were in place.

He said the economy still needed propping up with record low interest rates.

Since the 1980s, the Fed's main lever for controlling lending conditions has been the Federal Funds rate. That rate is now at a record low near zero.

Source:
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BBC News, 2010. Ben Bernanke outlines strategy to withdraw US stimulus [Online] (Updated 10th Feb 2010)
Available at: http://www.ukwirednews.com/news/36254/Ben-Bernanke-outlines-strategy-to-withdraw-US-stimulus [Accessed 24th Apr 2014]

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