Federal Reserve Chairman Ben Bernanke on Monday delivered a broad defense of the central bank's controversial bond-buying stimulus plan, saying its actions are necessary to support a flagging economic recovery.
Bernanke pushed back against the accusations that the Fed's policy is laying the groundwork for inflation in the future or enabling the government to run large budget deficits.
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He said that while the country's unusually weak economic performance had forced the Fed to resort to less conventional tools after bringing interest rates all the way down to effectively zero, the Fed's goals of price stability and maximum sustainable employment have not changed.
"These goals mean, basically, that we would like to see as many Americans as possible who want jobs to have jobs, and that we aim to keep the rate of increase in consumer prices low and stable," Bernanke told the Economic Club of Indiana.
He reiterated the Fed's commitment, made at the September meeting where it announced a new, open-ended program of asset purchases, to keep a heavy dose of monetary stimulus in place even after the economic rebound appears to gain traction.
"As long as price stability is preserved, we will take care not to raise rates prematurely," Bernanke said.
The Fed chief noted inflation has fluctuated close to Fed officials' target of 2 percent, and that inflation expectations have remained stable, suggesting low risk of a sudden spurt of price rises.
He also argued against the notion that the Fed was monetizing the federal debt or effectively printing money to keep the government's borrowing costs low.
"That's not what's happening, and that will not happen," Bernanke said. "We are acquiring Treasury securities on the open market and only on a temporary basis, with the goal of supporting the economic recovery through lower interest rates."
(Writing by Pedro Nicolaci da Costa; Editing by Andrea Ricci)