Federal Reserve Board Chairman Ben Bernanke speaks at Economic Club of Indiana

Bernanke speaks at convention center

INDIANAPOLIS - Federal Reserve Chairman Ben Bernanke has offered a sharp defense of its bold policies to stimulate the weak economy.

Bernanke said a speech in Indianapolis on Monday that the Fed needs to drive down borrowing rates because the economy isn't growing fast enough to reduce high unemployment. The unemployment rate is 8.1 percent.

He told the Economic Club of Indiana that low rates could also help lower the federal budget deficit by reducing the government's borrowing costs and generating more tax revenue through stronger growth.

"Right now, we see an economy which is expanding. We see employment, which is one of the key indicators of recession, still growing, so we expect the economy to continue to grow," Bernanke said. "That's our best forecast as of now.  So we are not expecting a recession."

His statements didn't surprise local economists, who said they didn't expect Bernanke to address the issue of another recession.

"He has to be a cheerleader. If this guy says anything negative, even if he believes it, that's going to send the economy down the wrong path, so he has to be a cheerleader in many respects, and that's what he was saying today," said Matthew Will, an economist at the University of Indianapolis.

At the same time, Bernanke is cautioning Congress against changing the law so it could review the Fed's interest-rate policy discussions. He warns that could improperly inject politics into the talks and make Fed policymakers less likely to act.

He stressed the need to keep interest rates low for the foreseeable future to encourage a recovery.

"The chairman really made it clear that interest rates are going to remain low well through 2015, so that gives investors and homebuyers and consumers a good two and a half year window of low interest rates," said Michael Hicks, an economist at Ball State University. "I think that's something that he hasn't stressed as much in the past."

Allowing the economy to creep along, not creating enough jobs to put people back to work, is not an acceptable strategy, Bernanke said.

"The more people we're going to have whose skills are going to atrophy, whose ability to find work is going to decline, and we'll be creating a permanent group of people who are not fulfilling their full potential in the labor force," he said. "That, I think, is very, very costly."

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