The new Fed chief said late on Monday it was difficult to say why long-term rates were at such low levels and he outlined competing scenarios on what that meant for short-term rates.
But Bernanke, who became chairman of the Fed on February 1, also told a gathering in New York that US growth was likely to stay strong due to solid consumption.
The dollar made modest gains as the market initially took his comments to be supportive of the case for more rate rises after a campaign of 14 quarter-point increases that has taken overnight rates to 4.5%.
The implications for monetary policy of the recent behavior of long-term yields are not at all clear-cut, Bernanke told the Economic Club of New York.Bernanke revisited a thesis he laid out a year ago, that a global saving glut an excess of savings because of a dearth of enticing investments could be depressing rates.
If this were the case, he said, the neutral policy rate would be lower than otherwise to keep the economy on an even keel. But Bernanke laid out other possibilities and concluded: The bottom line for policy appears ambiguous.One factor Bernanke raised, but downplayed, was that large foreign holdings of U.S. Treasury debt were pushing yields down. Bernanke said this was not the only, or even the dominant, explanation for recent market behavior.While overnight rates have risen 3.5 percentage points since mid-2004, the market-set rate on 10-year US government bonds has barely budged.Bernanke said that if the low level of long-term rates reflected investors willingness to take on more risk, it could mean financial conditions were stimulative. That, he said, would require higher short-term rates than otherwise necessary.
But to the extent that long-term rates have been influenced by macroeconomic conditions, including such factors as trends in global saving and investment, the required policy rate will be lower, Bernanke said.
The dollar gained around a third of a cent per euro and rose nearly a fifth of a yen after the Bernanke remarks.
The dollar initially firmed as the market sensed that Bernanke was sounding a bit hawkish, but a second reading of his comments shows that they are balanced, said Robert Rennie, chief currency strategist at Westpac in Sydney. It is one week before the next Fed meeting, so Bernanke was not going to say anything too relevant for monetary policy.
The Fed chief was more direct when giving his view of the state of the economy.
Broadly speaking I think that consumer finances are consistent with continued reasonable growth in consumption and enough to keep the economy at or close to its potential output growth rates, Bernanke said in answer to a question.