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Bernanke Says Discount Rate May Rise ‘Before Long’

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Scott Lanman and Craig Torres
Wednesday, February 10th, 2010

The Federal Reserve may raise the discount rate “before long” as part of the “normalization” of Fed lending, a move that won’t signal any change in the outlook for monetary policy, Chairman Ben S. Bernanke said.

Bernanke repeated the Federal Open Market Committee statement that low rates are warranted “for an extended period” in testimony prepared for the House Financial Services Committee. The Fed may also temporarily replace the federal funds rate as a policy guide with interest it pays on banks’ deposits should fed funds become a “less reliable indicator than usual,” Bernanke said.

Bernanke, who this month started his second four-year term as Fed chief, previewed what would be the first interest-rate move in more than a year while giving more details on several tools that may be used to tighten credit “at some point.” Bernanke, 56, and his fellow policy makers are preparing to remove unprecedented monetary stimulus as the U.S. economy is forecast to grow at the fastest pace since 2006.

“Before long, we expect to consider a modest increase in the spread between the discount rate and the target federal funds rate,” Bernanke said in the testimony for a hearing originally scheduled for today and postponed because of a snowstorm. A new date hasn’t been announced.

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This article was posted: Wednesday, February 10, 2010 at 11:04 am

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