Bernanke says Fed to keep rates low even after growth pickup

Federal Reserve Chairman Ben S. Bernanke renewed a pledge to sustain record stimulus even after the U.S. expansion gains strength, while saying policy makers don’t expect the economy to remain weak through 2015.

“We expect that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economy strengthens,” Bernanke said today in a speech in Indianapolis. Policy makers’ forecast to hold the main interest rate near zero until at least mid-2015 “doesn’t mean that we expect the economy to be weak through” that year.

The Federal Open Market Committee said last month it will buy $40 billion of mortgage debt a month in a third round of quantitative easing until the labor market shows “sustained improvement.” The panel also extended its horizon for low interest rates from a previous date of late 2014.

Bernanke, a scholar of the Great Depression, has deployed the most aggressive monetary policies since the Fed’s founding nearly a century ago as he battled the 2007-2009 financial crisis, helped pull the nation out of the worst recession since the 1930s and sought to keep the expansion going.

Five years of low interest rate policies “have not led to increased inflation,” and the public’s expectations for price gains “remain quite stable,” Bernanke said to the Economic Club of Indiana. Fed officials have the necessary tools to tighten when needed to prevent “inflationary pressures down the road,” he said.

Stronger Growth

The Fed chairman said last month he wants stronger growth and improvement in the labor market, which he characterized as a “grave concern.” The U.S. economy added 96,000 jobs in August, less than forecast by economists and down from a 141,000 increase in July. The Oct. 5 jobs report may show employers added 115,000 jobs in September, according to the median of 80 economist estimates in a Bloomberg survey.

The economy grew less than previously forecast in the second quarter, the Commerce Department said Sept. 27. Gross domestic product expanded by 1.3 percent in the second quarter after expanding at a 2 percent rate from January through March. The revision compared with a prior estimate of 1.7 percent.

At the same time, the Institute for Supply Management’s U.S. factory index rose to 51.5 in September from 49.6 a month earlier, the Tempe, Arizona-based group said today. Economists in a Bloomberg survey projected a reading of 49.7 for September, according to the median of 76 forecasts. The dividing line between expansion and contraction is 50.

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