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Bernanke Says Higher Rates May Signal Stronger Economy

Feb. 27 (Bloomberg) -- Michael McKee reacts to Federal Reserve Chairman Ben Bernanke's testimony to the House Financial Services Committee in Washington. McKee speaks on Bloomberg Television's "Money Moves." (Source: Bloomberg)

Federal Reserve Chairman Ben S. Bernanke said recent increases in some interest rates may signal the economy is gaining vigor.

“The fact that interest rates have gone up a bit is actually indicative of a stronger economy,” Bernanke said in Washington today in response to questions from members of the House Financial Services Committee. That indicates the Fed’s stimulus is working, he said.

Bernanke also said the central bank’s easing policies are helping to improve demand for homes and cars, and that the housing market is recovering. He was continuing his semi-annual testimony to Congress after speaking yesterday in the Senate.

The world’s largest economy has shown signs that it will resume growth after gross domestic product unexpectedly shrank 0.1 percent in the fourth quarter. Reports today showed that orders for U.S. durable goods excluding transportation gear jumped in January by the most in a year and contracts to buy previously owned homes climbed more than forecast.

“We are getting some traction in the housing market, in automobiles and other durable goods” and to “some extent in investment” and commercial real estate, Bernanke said.

Job growth in autos and housing has been a bright spot as car- and home-loan availability benefited from the central bank’s strategy of holding its benchmark interest rate low and pressing on with bond purchases of $85 billion a month. The U.S. added 603,000 jobs in the fourth quarter, the fastest pace since the first quarter of last year, Labor Department data show.

Photographer: Andrew Harrer/Bloomberg

Federal Reserve Chairman Ben S. Bernanke said the central bank’s easing policies are helping to improve demand for homes and cars, and that the housing market is recovering. Close

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Photographer: Andrew Harrer/Bloomberg

Federal Reserve Chairman Ben S. Bernanke said the central bank’s easing policies are helping to improve demand for homes and cars, and that the housing market is recovering.

Stocks Rise

U.S. stocks rose, sending the Standard & Poor’s 500 Index higher for a second day, amid economic optimism after the better-than-estimated housing and durable goods data. The S&P 500 climbed 1.1 percent to 1,513.35 at 12:33 a.m. today.

Fed policies also helped to lift the index to a five-year high on Feb. 19 (SPX), giving support to consumer spending. Bernanke said yesterday in testimony that U.S. share prices don’t appear to be overvalued.

Some interest rates have risen in recent months. The rate on a fixed 30-year mortgage climbed to 3.56 percent in the week ended Feb. 21 from a low of 3.31 percent on Nov. 22, according to data from Freddie Mac.

The yield on the 10-year Treasury note was 1.88 percent at about 12:28 p.m. in New York, up from a record low of 1.379 percent on July 25.

Bernanke also said the central bank will soon conduct of a review of its strategy for an exit from record monetary easing, which involves raising the benchmark interest rate and eventually selling assets.

“We haven’t done a new review of the exit strategy yet I think we will have to do that sometime soon,” Bernanke said in Washington today in response to questions from members of the House Financial Services Committee.

He said he thought the “basic outline” of the existing strategy would hold. “The one thing we could do differently is hold some of the securities a little longer,” he said. “We could just let them run off.”

To contact the reporters on this story: Caroline Salas Gage in New York at csalas1@bloomberg.net; Jeff Kearns in Washington at jkearns3@bloomberg.net;

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

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