Bernanke was back in Congress this week testifying on monetary policy and the U.S. economy to the House Financial Services Committee and to the Senate Banking Committee. This Reuters article has a good overview of the highlights of the House committee hearing. The testimony was very similar to what we heard last month. One new thing is that Bernanke tried to de-emphasize the impact of zero interest rates policy on savers. Here's an excerpt of what Bernanke said:
From the point of view of savers, for most savers, something less than 10 percent of all savings by retirees is in the form of fixed-interest instruments like CDs. Remember, people also own equities, they own money-market funds, they own mutual funds, they have 401Ks and a variety of things and those assets are assets whose returns depend very much on how strong the economy is. So in trying to strengthen the economy, we are actually helping savers by making the returns higher as we can see in the stock market, for instance
As a reader noted last month, Bernanke overlooks the fact that there are many people who avoid the risks inherent in the stock market.
Bernanke continues to defend the zero interest rate policy as necessary to improve the economy.
It is arguable that interest rates are too high, that they are being constrained by the fact that interest rates can't go below zero. We have an economy where demand falls far short of the capacity of the economy to produce. We have an economy where the amount of investment in durable goods spending is far less than the capacity of the economy to produce. That suggests that interest rates in some sense should be lower rather than higher. We can't make interest rates lower, of course. (They) only can go down to zero.
For the last few years, many pundits and economists have said there's more harm than good by keeping rates too low for too long. In October 2009 Barron's had on their front page "It's Time to Raise Rates, Ben". This Yahoo Finance article describes how this zero interest rate policy should be considered as a crisis policy that may have been appropriate during the 2008/2009 financial crisis, but it's now overkill after the crisis has long ended:
"They need to get out of that crisis mindset," says Jim Paulsen, chief investment strategist at Wells Capital Management, who thinks an about-face on the policy front is overdue. "I mean, do you really think we'd be worrying about Greece in this country if we had a legitimate crisis to worry about? I don't think you can any longer argue that the U.S. economy needs crisis policy."
It's clear that these opinions are not changing the minds of Bernanke and most others on the FOMC. I think the best we can hope for is that the economy will continue to strengthen so that the Fed will finally consider interest rate hikes sometime after 2013.