Bernanke Favors Low Interest Rates, Pushes For Broader Economic Regulation

Ben Bernanke, chairman of the Federal Reserve Board, spoke in favor of the Fed’s determination not to raise US interest rates during a yearly meeting of the Kansas City Federal Reserve Bank earlier today.

The economic troubles that have been plaguing the US since 2007 haven’t ended yet, claimed Bernanke. Thus, the Federal Reserve Bank is unlikely to wish the US prime rate to rise above 2% during the next few months.

America’s recent real estate and subprime lending crises, combined with rising inflation and unemployment, have created “one of the most challenging economic and policy environments in history,” said Bernanke. Although some Federal Reserve Board members have advocated increasing the interest rate to address the country’s high rate of inflation, most appear to agree with Bernanke.

America’s present economic slowdown will counteract inflation, believes Bernanke along with most of the Fed. Interest rates must remain low to encourage Americans to borrow and spend, thus combating economic stagnation.

The prices of US goods rose by a record 5.6% during the month of July, the highest monthly increase the US has seen in 17 years. However, the Fed anticipates that prices will eventually drop, especially for internationally-traded commodities such as oil, said Bernanke. Although the chairman termed the present US inflation situation “highly uncertain,” he predicted a normalization of inflation rates to occur “in the medium run.”

During the course of the symposium, Bernanke also argued for “broader” regulation. Rather than regulating specific companies, Bernanke asserted that the Fed should instead look at nationwide policies. In this way, the Fed should be able to anticipate problems such as the recent credit crisis before they  begin, argued the

Meanwhile, Bernanke added, consumers never be lulled into complacency. “An expectation by the financial market participants that financial crises will never occur would create its own form of moral hazard and encourage behavior that would make financial crises more, rather than less, likely,” Bernanke admonished.

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