In prepared testimony before Congress, Chairman Bernanke says the Fed has not run out of bullets to boost the economy. Conditioning his statement that if a further easing is needed, the Fed could cut the rate paid on reserves. But maintaining a balanced position, he also stated that the Fed could exit from its expanded balance sheet sooner if appropriate. He notes that although QE2 has ended, the Fed's elevated level of holdings is still depressing interest rates. Bernanke believes that the recent run up in inflation and the current slowdown are temporary. Oil prices have come down and supply disruptions are being overcome. The Fed chief stated that QE2 had the intended effects of precluding deflation and boosting economic activity and employment. Nonetheless, Bernanke sees rates remaining low for an extended period.
Much of Q&A initially focused on fiscal policy instead of monetary policy as House committee members postured for debt ceiling negotiations. Bernanke responded largely with general principles or obvious (to those paying attention) facts regarding federal budget and debt trends. The Fed chief said that it is important to address long-term fiscal issues and that within 10-15 years, tax revenues will be inadequate for funding entitlements. He is in favor of a big, long-term fiscal agreement. He sees the risk of not having such a deal causing higher interest rates. However, Bernanke cautions that there should not be sharp cuts immediately - care needs to be taken. He sees the deficit as a long term problem that requires a long term solution.
Regarding the Fed's responses to the recent financial crisis, he differentiated that the Fed has lent money, not spent crisis funds, and the Fed has been or is being repaid. He noted that although TARP and some other programs were seen by some as unfair, they did keep the economy from collapsing. .
When asked what if the debt ceiling is not raised, Bernanke stated it would create "a huge, financial calamity." He said he is certain we would lose jobs, not gain jobs, if the ceiling is not raised.