US economy needs more stimulus: Bernanke.
"The recovery has faced powerful headwinds, suggesting that economic growth might well have been considerably weaker, or even negative, without substantial monetary policy support," Bernanke said, defending the Fed's record against skeptics who see disappointing growth as proof of Fed's failure.
For the most part, research shows that the Fed's massive bond purchases and communication about the likely path of future policy have "helped promote the recovery," he said, according to his remarks prepared for delivery at the annual meeting of the American Economic Association in Philadelphia.
Bernanke's speech comes less than a month before he is set to step down from the helm of the central bank. He appeared to use the opportunity to start defining the legacy of his eight tumultuous years leading the institution.
The US Senate is scheduled to vote to confirm Bernanke's replacement, Fed Vice-Chairwoman Janet Yellen, today. Her term would begin February 1.
Among economic headwinds, Bernanke highlighted the drag on growth produced by tighter fiscal policy especially at the federal level, saying that budget belt-tightening and tax increases in recent years "have likely been counterproductive." Bernanke has long highlighted the challenge tighter fiscal policy has posed to the economy, but his criticism seemed particularly forceful in the speech.
"With fiscal and monetary policy working in opposite directions, the recovery is weaker than it otherwise would be," Bernanke said. The Fed and Congress working at cross purposes is particularly problematic when short-term interest rates are pinned near zero, as they have been since late 2008.
The Fed's tools are less powerful when rates are near zero, while Congress may have more room to maneuver, he said.
"Expansionary fiscal policy is likely both more effective and less costly in terms of increased debt burden when interest rates are pinned at low levels," he said.
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