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Bernanke says premature tightening would endanger recovery

Federal Reserve Chairman Ben Bernanke said yesterday the U.S. economy remains hampered by high unemployment and government spending cuts, and raising interest rates or reducing asset purchases too soon would endanger the recovery.

“A premature tightening of monetary policy could lead interest rates to rise temporarily but would also carry a substantial risk of slowing or ending the economic recovery and causing inflation to fall further,” Bernanke said in testimony to the Joint Economic Committee of Congress in Washington, D.C. Monetary policy is providing “significant benefits,” he said.

Bernanke is leading the most aggressive economic stimulus in the Fed’s 100-year history in an effort to spur growth and reduce an unemployment rate that stands at 7.5 percent almost four years into a recovery from the longest and deepest recession since the Great Depression.

While the labor market has shown “some improvement,” the Fed chairman said “high rates of unemployment and underemployment are extraordinarily costly.”

William Dudley, president of the Federal Reserve Bank of New York, also signaled that it’s too soon to tighten policy.

“Three or four months from now I think you’re going to have a much better sense
of, is the economy healthy enough to overcome the fiscal drag or not,” Dudley said in an interview.

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