Bernanke ramps up defence of Fed's Treasury bond purchases by pointing to weak economy

WASHINGTON - U.S. Federal Reserve Chairman Ben Bernanke is stepping up his defence of the Fed's $600 billion Treasury bond-purchase plan, saying the economy is still struggling to become "self-sustaining" without government help.

In a taped interview with CBS' "60 Minutes" that aired Sunday night, Bernanke also argued that Congress shouldn't cut spending or boost taxes given how fragile the economy remains.

The Fed chairman said he thinks another recession is unlikely. But he warned that the economy could suffer a slowdown if persistently high unemployment dampens consumer spending.

The interview is part of a broad counteroffensive Bernanke has been waging against critics of the bond purchase plan the Fed announced Nov. 3. The purchases are intended to lower long-term interest rates, lift stock prices and encourage more spending to boost the economy.

Critics, from Republicans in Congress to some officials within the Fed, say they fear the Fed's intervention could spur inflation and speculative buying on Wall Street while doing little to aid the economy.

On other issues in the "60 Minutes" interview, Bernanke:

— Argued that unemployment would have been far higher — "something like it was in the Depression, 25 per cent" — had the Fed not provided extraordinary aid to Wall Street firms, banks and other companies to ease a credit crisis.

— Said it could take four or five more years for unemployment, now at 9.8 per cent, to fall to a historically normal 5 per cent or 6 per cent.

— Reiterated that the Fed is prepared to buy even more than $600 billion in Treasury bonds over the next eight months, should it decide the economy needs the fuel of even lower interest rates.

— Argued that the risk of inflation is overblown. Bernanke said he's "100 per cent" confident the Fed will be able to ward off inflation, when the time is right, by raising interest rates and unwinding its stimulative programs.

— Called the risk of deflation — a prolonged drop in prices, wages and the values of homes and stocks — "pretty low." He said the likelihood would have been greater if the Fed weren't maintaining super-low interest rates.

— Urged Congress to improve the nation's tax code "by closing loopholes and lowering rates" for individuals and companies. He said doing so would create greater incentives for people to invest.

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