Sunday, February 28, 2010

Bernanke: Rates to stay low

by Jeannine Aversa Associated Press Feb. 25, 2010 12:00 AM

WASHINGTON - New signs emerged Wednesday that the economic rebound is sputtering. Sales of new homes hit a record low last month and mortgage giant Freddie Mac said it will need more federal aid and might never repay it.

Against that backdrop, the government is trying to prop up the housing and job markets. Federal Reserve Chairman Ben Bernanke reiterated the need to continue record-low interest rates for "an extended period." And the Senate passed a bill to give tax breaks to companies that hire the jobless.

Bernanke told Congress that low rates will help ensure that the recovery will last and help ease the sting of high unemployment. Asked what else Congress could do to stimulate job creation, he hesitated to say.

"I'm sure you know the menu of things that you could do which could create jobs," he said. "Unfortunately there's no - there's no silver bullet here."

Investors seemed buoyed by Bernanke's commitment to low rates, despite the news on home sales and Freddie Mac.

The Dow Jones industrial average gained about 91 points, roughly 0.9 percent.

Yet economists cautioned that the government's ability to help is limited.

Bernanke, in his twice-a-year report to the House Financial Services Committee, said the rebound would endure. But he also said the Fed sees moderate growth that will cause only a slow decline in the nearly double-digit jobless rate.

He offered no clues about when the Fed would raise interest rates, but economists think it's months away.

Bernanke faces more pressure than usual from lawmakers in an election year. Their constituents are struggling, while bailed-out Wall Street banks are profitable again. Unemployment stands at 9.7 percent, foreclosures are at record highs and loans are harder to secure.

Underscoring the fragility of the housing market, the government said new-home sales dropped 11 percent to its lowest level in the nearly 50 years records have been kept.

Economists worry about how the housing market would respond once government aid programs are withdrawn. One such program has lowered mortgage rates and bolstered housing but it ends March 31. Under the program, the Fed committed $1.25 trillion to buying mortgage securities and debt from Freddie Mac and its sister mortgage finance firm Fannie Mae.

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