This story is from February 11, 2010

Fed may start withdrawing stimulus package

Agencies / Feb 11, 2010, 01:16 IST

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The US central bank has pumped more than $1 trillion into the economy after it slashed benchmark rates to near zero to combat the worst financial crisis since the Great Depression.

Fed may start withdrawing stimulus package

WASHINGTON: The Federal Reserve could begin pulling back its unprecedented stimulus for the US economy by first removing some cash from the financial system and then raising interest rates, Fed chairman Ben Bernanke said on Wednesday. The US central bank has pumped more than $1 trillion into the economy after it slashed benchmark rates to near zero to combat the worst financial crisis since the Great Depression.
Fed may raise the discount rate before long as part of the normalization of Fed lending, a move that wont signal any change in the outlook for monetary policy, Bernanke said.
He 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.
While the economy has grown for the past two quarters, unemployment is at a lofty 9.7%. In his most detailed description to date of how the Fed aims to dismantle the extensive emergency support facilities it put in place during the crisis, Bernanke made clear the Fed’s thinking on its exit strategy had advanced even though the time for tightening monetary policy was still some ways away.
“Although at present the US economy continues to require the support of highly accommodative monetary policies, at some point the Federal Reserve will need to tighten financial conditions,” Bernanke said.The hearing was postponed because of heavy snow that shut down transportation in Washington, but the Fed decided to go ahead and make Bernanke’s testimony public.

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