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Keep the pedal to the metal. That was the message from the Federal Reserve today after two days of meetings. The Fed is sticking with its policy of ultra low interest rates aimed at boosting economic growth. There have been some positive signs lately from the job and housing markets. And some Fed economists are concerned that continued low rates could lead to inflation, and financial instability. Nonetheless, Fed Chairman Ben Bernanke is defending the low rate strategy.
Here's NPR's John Ydstie.
JOHN YDSTIE, BYLINE: Bernanke acknowledged the improvement in the job market, an average of over 200,000 jobs created in the private sector for the past five months and a drop in the unemployment rate of 4/10 of a percent since September. But Bernanke says before easing up on the accelerator, the Fed needs to make sure this is not temporary improvement.
BEN BERNANKE: We've seen periods before where we've had as many as 300,000 jobs for a couple of months and then things weakened again. So I think an important criterion would be not just the improvement that we've seen, but is it going to be sustained for a number of months?
YDSTIE: Asked when the last time was that he talked to someone who was unemployed, Bernanke said quite recently. In fact, he has a relative who's unemployed, he said, and his hometown in South Carolina suffered jobless rates as high as 15 percent during the crisis.
BERNANKE: I have great concern about the unemployed, both for their own sake, but also because the loss of skills, the loss of labor force attachment is bad for our whole economy.
YDSTIE: Fed policymakers agreed to continue to pump $85 billion into the economy each month through bond purchases to boost growth. But Bernanke said the amount could change depending on how the economy and unemployment are responding. The chairman suggested there's little evidence the Fed's aggressive policy is producing dangerous side effects, as some have predicted, like a bubble in the stock market. So far, he says, the Fed doesn't see anything out of line with historical patterns.
BERNANKE: In particular, you should remember, of course, that while the Dow may be hitting a high, it's in nominal terms. It's not in real terms. And if you adjust for inflation and for the growth of the economy, you know, we're still some distance from the high.
YDSTIE: Bernanke also commented on the financial crisis du jour, the meltdown of the banking system in Cyprus. He was asked whether he supported the EU strategy of taxing depositors in the bank. Bernanke said there were risks it could erode confidence in the banks. But he stopped short of criticizing the EU policymakers.
BERNANKE: It's a very tough issue and finding the resources to solve Cyprus' problem, you know, there's probably no easy way to do it. And I don't envy them that particular challenge.
YDSTIE: As for the effects on the U.S., Bernanke said Cyprus is a tiny economy and even potential runs on its banks - once they open again - shouldn't pose much threat.
BERNANKE: The only way that they would create a problem would be if the runs became contagious in some sense, if depositors in other countries lost confidence. But at this point, I'm not aware of any evidence that that is, in fact, the case.
YDSTIE: There remains a debate in the U.S. about whether policymakers here have ended the prospect of more bank bailouts. The Dodd-Frank financial overhaul included a number of elements aimed at ending too big to fail. But implementing those measures has been slow. Bernanke expressed determination to get it done.
BERNANKE: Too big to fail was a major part of the source of the crisis. And we will not have successfully responded to the crisis if we don't address that problem successfully.
YDSTIE: Stocks markets responded positively to the Fed's statement and Bernanke's remarks with all major indexes making gains.
John Ydstie, NPR News, Washington. Transcript provided by NPR, Copyright NPR.