WASHINGTON - Federal Reserve chairman Ben Bernanke affirmed yesterday that interest rates are likely to stay low at least through late 2014 without offering any indication that further monetary easing is under consideration.
“At present, with the unemployment rate elevated and the inflation outlook subdued, the committee judges that sustaining a highly accommodative stance for monetary policy is consistent with promoting both objectives’’ for stable prices and maximum employment, Bernanke said in testimony to the House Financial Services Committee.
While describing “positive developments’’ in the labor market, Bernanke said it “remains far from normal.’’ In the first day of his semiannual monetary policy report to Congress, he said a recent rise in gasoline prices “is likely to push up inflation temporarily’’ and reduce consumer purchasing power.
When he last appeared before Congress in July, Bernanke outlined steps that the Federal Open Market Committee subsequently took in its August and September meetings. Yesterday, he made no mention of additional options to boost growth in prepared testimony or answers to lawmakers’ questions.
“Monetary policy is not a panacea,’’ he said. “It can help offset cyclical fluctuations and financial crises like we’ve had, but the long-term health of the economy depends mostly on decisions taken by the Congress and the administration.’’
At the same time, Bernanke indicated that recent signs of strength in the economy haven’t changed his view that low rates are needed to keep the two-year expansion going and further reduce the unemployment rate, which dropped to a three-year low of 8.3 percent in January.
Bernanke sounded a note of optimism on Europe, saying that if its financial system remains stable, a mild slump would probably not threaten the United States.
“We do think that if Europe has a mild downturn, which is what they are currently forecasting, and if the financial situation remains under control that the effect on the United States might not be terribly serious,’’ he said.
US banks “have done a pretty good job’’ hedging exposure to sovereign debt and to European banks, he said. Still, there is “significant risk’’ of stress and contagion from “a major financial accident,’’ he said.
The outlook for inflation is likely to “remain subdued,’’ he said, as the Fed continues to monitor energy markets. Gas prices have climbed 13 percent since the start of the year to $3.72 a gallon, according to AAA.