Hatch Says Bernanke Would Cut QE If Inflation Accelerates

Federal Reserve Chairman Ben S. Bernanke said in a meeting with U.S. senators that the central bank would curtail its bond purchases if inflation accelerates, according to Senator Orrin Hatch, a Republican from Utah.

“If inflation starts to rise, he said he’d have to back off” from so-called quantitative easing, Hatch said today after Bernanke met with members of the Senate Finance Committee in Washington. “He felt that inflation was under control.”

After 43 straight months of unemployment above 8 percent, the Federal Open Market Committee announced on Sept. 13 its third round of large-scale asset purchases since 2008. The FOMC for the first time didn’t set a limit on the amount the Fed will buy or the duration of purchases. Bernanke said that day at a press conference he’ll add to the record stimulus until achieving “sustained improvement” in the labor market.

Bernanke urged the lawmakers to ensure the U.S. takes the steps needed to avoid the so-called fiscal cliff that would cause a recession, said Hatch, the committee’s top Republican.

“He made it very clear that we can’t go off the cliff without going into a recession,” Hatch said. “I think he’s got a tiger by the tail and he’s doing the best he can.”

The Fed chairman was “very helpful” in describing the risks of the more than $600 billion of tax increases and spending cuts that will kick in automatically at the end of the year unless Congress acts, said Senator Max Baucus, chairman of the panel and a Democrat from Montana.

Main Risk

The Congressional Budget Office said in an Aug. 22 economic report that fiscal tightening of that magnitude could cause a recession. That is one of the “main sources of risk” facing the U.S. economy, Bernanke has said.

Lawmakers are deadlocked over how to avert the fiscal cliff, particularly on tax policy. Democrats propose letting tax cuts expire for top earners while Republicans want to extend expiring tax reductions for all income levels.

“The Federal Reserve chairman reiterated what we already know, but it can’t be said enough,” Senator Charles Grassley, Republican of Iowa, said in a statement. “Impending tax increases combined with the mandatory budget cuts would be a severe, negative shock to the economy.”

To contact the reporters on this story: Steve Matthews in Atlanta at smatthews@bloomberg.net; Michelle Jamrisko in Washington at mjamrisko@bloomberg.net; Richard Rubin in Washington at rrubin12@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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