Thursday, January 31, 2013

Bernanke Keeping Foot on Stimulus Pedal

Ben Bernanke's term as chairman of the Federal Reserve expires one year from Thursday. Sometime between now and then, he's likely to take his foot off the gas pedal of financial stimulus that is helping to fuel the still-weak U.S. recovery and begin tapping on the brakes.

First appointed by President George W. Bush in 2006 and given a second four-year term as chairman by President Barack Obama, Bernanke hasn't signaled whether he'd like a third term as head of the nation's central bank if Obama pressed him to stay.

But speculation abounds that the former Princeton economics professor is ready to call it quits.

The central bank under Bernanke has kept interest rates ultra-low for more than four years.

At the same time, the Fed has effectively been printing money to buy hundreds of billions of dollars of mortgage-backed and U.S. Treasury securities, further holding down rates and pumping new money into the economy.

Many economists credit such policies for helping to keep the deepest U.S. downturn since the Great Recession from being far worse.

But the chief danger of such easy-money policies is inflation.

It's been tame so far, but at some point it's bound to roar back -- which is why a time will come for Bernanke and fellow Fed members to begin to unwind years of financial stimulus by halting the bond purchases and raising interest rates again.

No one knows just when -- but it probably won't be at the two-day Fed meeting that began in Washington today.

Instead, the Fed is expected to push on with its efforts to spur growth so long as economic inflation remains in check and unemployment stays so high.

Janet Yellen, the vice chairman of the Fed, is seen as most likely to be offered the top position by Obama if Bernanke retires.

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