Bernanke Says U.S. Recovery Would Be Weaker Without Bond Buying

Former Federal Reserve Chairman Ben S. Bernanke said the U.S. economy would be weaker had the Fed not pushed ahead with bond purchases that have expanded the central bank’s balance sheet to a record $4.16 trillion.

“Without asset purchases we would not have seen as much recovery in the U.S. economy as we have seen,” Bernanke said today at a conference in Johannesburg, describing so-called quantitative easing as a temporary, effective policy tool. As economies heal, QE will “go back into the emergency kit and central banks will go back to focusing on short term rates.”

Bernanke on Jan. 31 concluded eight years at the Fed and has since taken to the speaking circuit to explain and defend his tenure. As Fed chief he steered the U.S. economy through the financial crisis that led to the fall of Lehman Brothers Holdings Inc. and the longest recession in 70 years.

In remarks yesterday in Abu Dhabi -- his first public appearance since leaving the central bank -- Bernanke said the Fed didn’t always do a good job explaining why its efforts helped average Americans, and not only financial institutions.

Bernanke today defended the Fed’s degree of consultations with its counterparts in developing countries, saying “there is sometimes a suggestion that the Fed didn’t consult with emerging markets. I find it a very strange suggestion.”

“There is a lot of interchange and the sense that the Fed is not listening, I don’t think that’s a fair statement,” he said.

Bernanke introduced an unprecedented stimulus campaign in response to the recession, lowering the federal funds rate to zero in December 2008 and starting quantitative easing.

QE Taper

In December, during his second-to-last meeting of the policy making Federal Open Market Committee, Bernanke began to wind down the stimulus. Janet Yellen, who served as Fed vice chair under Bernanke and became Fed chief last month, said on Feb. 27 the central bank is likely to keep curtailing its stimulus.

The cutback in bond purchases has led to a reversal of the inflow of money into stocks and bonds in emerging markets, including South Africa. Since May, when the possibility of tapering of quantitative easing was first mentioned, the rand has lost 16 percent against the dollar, the worst among 16 major currencies tracked by Bloomberg.

Bernanke said yesterday in Abu Dhabi that the U.S. economy is showing signs of recovery, led in part by housing.

To contact the reporters on this story: Rene Vollgraaff in Johannesburg at rvollgraaff@bloomberg.net; Joshua Zumbrun in Washington at jzumbrun@bloomberg.net

To contact the editor responsible for this story: Nasreen Seria at nseria@bloomberg.net

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