Federal Reserve Chairman Ben Bernanke said on Monday that he does not see any grounds to halt the third round of quantitative easing.
According to Mr Bernanke, inflation, which is the main reason why his opponents insist on ending the QE, will not exceed 2% target.
He also asked the government not to adopt the bill triggering cuts in spending, which is to take effect on February 28, 2013.
He added that “to address both the near- and longer-term issues, the Congress and the Administration should consider replacing the sharp, frontloaded spending cuts required by the sequestration with policies that reduce the federal deficit more gradually in the near term but more substantially in the longer run”.
In his speech, he noted that the USA is not taking part in the currency wars forecasted by the experts after a new super accomodative policy launched by the Bank of Japan at the beginning of the year. Fed’s head said he is the dove of peace because he supports the QE. Meanwhile, inflation has been at one of its lowest levels ever.
However, he thinks that low inflation and slow economic growth can provoke deflation.
“With inflation at or below our 2% target, our policies have also had the effect of greatly reducing any risk of deflation, which at the moment doesn’t seem like much of the concern, but at certain times, as inflation gets close to the zero critical level, that risk increases and keeping inflation from going too low – I realize sometimes it’s hard to explain to people why inflation that’s too low is a problem – but if it’s too low, you run the risk of a Japanese-style situation, where prolonged deflation is a barrier to economic growth and stability”.
Meanwhile, the FOMC members have not come to an agreement about when and to what extend to halt the QE3 yet.
