Record-low rates still needed, Bernanke says

WASHINGTON - Federal Reserve Chairman Ben S. Bernanke told Congress yesterday that record-low interest rates were still needed to ensure that the economic recovery would last and to help ease the sting of high unemployment.

In his twice-a-year report to the House Financial Services Committee, Bernanke struck a confident tone that the recovery should endure. But he also sought to tamp down expectations.

"Notwithstanding these positive signs, the job market remains quite weak, with the unemployment rate near 10 percent and job openings scarce," he said.

He offered no new clues about the timing of an increase in interest rates. Most economists say they think it is months away. Bernanke said rates would need to stay at exceptionally low levels for an extended period "as the expansion matures."

Bernanke's report came the same day that Treasury Secretary Timothy Geithner told the House Budget Committee that the Obama administration would wait until 2011 to propose an overhaul of mortgage giants Fannie Mae and Freddie Mac.

Bernanke is facing more pressure than usual from lawmakers in an election year. Their constituents are struggling economically, while bailed-out Wall Street banks are profitable again.

"Getting people back to work - socially, most of all, but also for the overall economy" - is critical, said the committee's chairman, Rep. Barney Frank (D., Mass.).

Bernanke reiterated a pledge that the Fed would keep its main interest rate at an all-time low near zero for an "extended period." The target range for the Fed's main rate, the federal funds rate, has been between zero and 0.25 percent since December 2008.

At the same time, Bernanke stressed that when the economy is on firmer footing and the Fed needs to tighten credit for millions of Americans, he would do so.

Geithner, in his appearance before the House Budget Committee, told lawmakers that the administration had no intention of including Fannie Mae and Freddie Mac in the federal budget, even though they were taken over by the government in 2008 as they faced mounting losses from mortgage defaults.

Republican lawmakers have called for the administration to begin including Fannie and Freddie in the federal budget, saying it would give a more accurate picture of the government's fiscal condition.

Geithner also sought to assure lawmakers that stimulus spending to spur the economy now is not in conflict with a need for longer-term austerity.

Before the federal government can begin attacking soaring deficits and a massive national debt, it needs to increase jobs and ensure economic growth, he said.

"If you care about future deficits - and you have to care about these future deficits - you need to care about economic growth today," the secretary said.