WASHINGTON (MNI) – The following is an excerpt from a question of Federal
Reserve Chairman Ben Bernanke by MNI’s Steve Beckner at a press conference
Wednesday following the Federal Open Market Committee meeting:

STEVE BECKNER: With federal government borrowing one trillion a year and
now with the Fed on pace to buy roughly a trillion dollars a year in bonds, are
you concerned about a public, and possibly global perception that the Fed is
accommodating, not just growth, but accommodating federal borrowing needs? And
are you concerned about what this might to the Fed’s credibility and the
credibility of U.S. finances in general and the credibility of the dollar as the
world’s leading currency?

BERNANKE: Well first of all, just a couple facts. We are buying treasuries
and mortgage-backed securities about half-and-half roughly and we’re buying
considerably less than the Treasury is issuing. The share of outstanding
treasuries that the Federal Reserve owns is not all that different from what it
was before the crisis because while our holdings have increase so has obviously
the stock of treasuries in public hands so its not quite evident that there has
been a radical shift there.

And you know we’ve been increasing our balance sheet now for some time, and
we’ve been very clear that this is a temporary measure; it is a way to provide
additional accommodation to an economy which needs support. We’ve been equally
clear that we’ll normalize the balance sheet and reduce the size of holdings,
whether by letting them run off or by selling assets in the future. So this is,
again, only a temporary step.

It would be quite a different matter if we were buying these assets and
holding them indefinitely. It would be a monetization. We are not doing that. We
are very clear about our intentions. And I think, up until now, it seems our
credibility has been quite good. There is not any sign either of current
inflation and there’s no strong evidence that there is any increase in inflation
expectations for that matter, looking at financial markets, looking at surveys,
looking at economic forecasts and so on. So, this is one of the things we have
to look at.

Remember, I talked earlier about the potential costs of a large balance
sheet. We want to be sure that there’s no misunderstanding on inflation
expectations from the size of our balance sheet. That’s one of the things we
have to look at. But, as to this point, there really is no evidence that people
are taking it that way. And I guess its worth pointing out, of course, we’ve
been focused on the United States here, but we are not the only central bank
that has increased the size of its balance sheet. The Japanese, Europeans,
British have all done the same, and very much, more or less, to the same extent
in terms of fractions of GDP. And I think the sophisticated market players and
the public understand that this is part of a collective need, a need to provide
additional accommodation to weak economies and not an accommodation of fiscal
policy.

–MNI Washington Bureau; tel: +1 202-371-2121; email: dcoffice@mni-news.com

[TOPICS: MMUFE$,M$U$$$,MGU$$$]