Friday April 3, 05:20 PM
Fed monetary expansion 'prudent': Bernanke
WASHINGTON (AFP) - The US Federal Reserve's massive monetary expansion has been done "prudently" and in a way that can be quickly unwound as the economy revives, chairman Ben Bernanke said Friday.
Bernanke said the central bank's huge effort to pump money into the financial system is in response to the "extraordinary stress" in markets that has squeezed credit.
"Relieving the disruptions in credit markets and restoring the flow of credit to households and businesses are essential if we are to see, as I expect, the gradual resumption of sustainable economic growth," he said in comments to a credit market symposium in North Carolina.
"Though we have been creative in deploying our balance sheet, using a multiplicity of new programs, we have done so prudently."
Bernanke noted that "the great majority of our lending is extremely well secured."
The Fed chief repeated his description of the Fed strategy as "credit easing," even though analysts call the action "quantitative easing."
In prior comments, Bernanke has said the Fed is seeking to ease credit conditions rather than simply boost the quantity of money in circulation.
He said the Fed has "taken care to design our programs so that they can be unwound as markets and the economy revive."
The central bank, which can no longer use traditional monetary policy to stimulate activity after having cut its base rate to a range of zero to 0.25 percent, has resorted to exceptional moves to stimulate activity, essentially by printing money and buying up securities in markets that have been frozen.
"Notably, the balance sheet has more than doubled, from roughly 870 billion dollars before the crisis to roughly two trillion dollars now," he said.
Last month, the Fed said it would seek to pump over one trillion dollars more into the system by buying up long-term Treasury bonds and other securities.
Although the Fed has begun buying commercial paper to funds corporate loans and other types of asset-backed securities, he said "credit risk is very low" in these areas. Most of the other assets are US Treasury and agency debt that is "very safe from a credit perspective."
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