Federal Reserve Chairman Ben S. Bernanke on Wednesday told a House panel the U.S. central bank will act as needed to aid financial stability and economic growth after restarting emergency currency swaps to help contain Europe’s debt crisis.
“Our ongoing international cooperation sends an important signal to global financial markets that we will take the actions necessary to ensure stability and continued economic recovery,” Mr. Bernanke said in testimony before a House Budget Committee hearing.
The impact of the crisis on U.S. growth is “likely to be modest” if financial markets “continue to stabilize,” he said. He reiterated that the U.S. recovery is being restrained by the housing and commercial real estate markets and repeated his call for lawmakers to come up with a long-term deficit-reduction plan.
Mr. Bernanke and most of his fellow policymakers have given little indication they will soon back off from the central bank’s pledge to keep interest rates at a record low for an “extended period,” given high unemployment and low inflation. On Monday, Mr. Bernanke said that while the Fed will raise rates before the economy reaches “full employment,” growth isn’t fast enough to reduce joblessness quickly.
While recent use of the swap lines that restarted in May is “quite limited,” the program is “nevertheless providing an important backstop for the functioning of dollar funding markets,” Mr. Bernanke said.
In prepared remarks, Mr. Bernanke said the economy is being supported by “stimulative” monetary policy, without elaborating.
European finance ministers this week put the finishing touches on a rescue fund backed by €440 billion ($526 billion) in national guarantees, seeking to halt the spread of Greece’s debt crisis. The Fed had $6.64 billion of swaps outstanding as of June 2, compared with a record $583.1 billion in December 2008.