Fed, BoC to maintain accommodative policies

The Fed looks likely to keep monetary policy accommodative for some time to come. Bloomberg reports Fed chairman Ben Bernanke's testimony in Congress on Tuesday.

Federal Reserve Chairman Ben S. Bernanke said while the economy is showing “tentative signs of stabilization,” the central bank intends to maintain a “highly accommodative” monetary policy for “an extended period.”

“The pace of decline appears to have slowed significantly,” Bernanke said today in semi-annual testimony before the House Financial Services Committee. At the same time, “in light of the substantial economic slack and limited inflation pressures, monetary policy remains focused on fostering economic recovery,” he said.

Bernanke also outlined his exit strategy.

“We have a number of tools that will enable us to raise market interest rates as needed,” he said, noting that outright sales from the Fed’s portfolio would also raise longer-term interest rates...

Among the five options, the interest rate on banks’ deposits with the Fed is “perhaps the most important” tool, Bernanke said. It “will most likely be used in combination” with other methods, including reverse-repurchase agreements and term deposits, the report said.

Another central bank that appears likely to keep monetary policy accommodative for some time is the Bank of Canada, which left interest rates unchanged on Tuesday. Again from Bloomberg:

The Bank of Canada kept its benchmark interest rate at a record low, and said the stronger Canadian dollar is slowing a recovery that has been quicker than policy makers expected.

All 23 economists surveyed by Bloomberg News predicted Governor Mark Carney would keep the target rate for overnight loans between commercial banks at 0.25 percent. The central bank also reiterated a plan to keep that rate unchanged through June 2010, and made no comment on further credit-market stimulus...

The bank now expects the economy to shrink 2.3 percent this year, less than its April forecast for a 3 percent contraction. Inflation will return to its 2 percent target three months sooner than earlier projected, the statement said, and the global economy shows signs of a “nascent” recovery.