Bernanke signals tighter monetary policy

Federal Reserve Chairman Ben Bernanke began Wednesday to outline how the central bank may tighten monetary policy and end programs used to prop up the economy during the financial crisis.

Bernanke said in written testimony released by the Fed that the economy continues to need “accommodative monetary policies,” but that at some point the central bank will need to tighten monetary policy.

Bernanke was scheduled to testify before the House Financial Services Committee, but the hearing was postponed because of the heavy snowstorm hitting the Washington area.

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The testimony begins to shed light on how the Fed will try to navigate the need to boost the economy while also fending off the potential for inflation.

Bernanke was confirmed to his second term as chairman with the fewest votes in support of any Fed chairman. The Fed has come under heavy criticism from congressional lawmakers for its role in the run-up to the financial crisis and for the various steps taken by the Fed and other government offices to bail out financial firms.

Bernanke said that the Fed currently has $116 billion in credit extended stemming from the bailouts of Bear Stearns and American International Group (AIG), the crippled insurer. Bernanke said that the Federal Reserve Board “continues to anticipate that the Federal Reserve will ultimately incur no loss on these loans.”

Bernanke reiterated his support for a new regulatory system to allow for the resolution of failing firms that threaten the broad financial system.