Bernanke Reveals Plan to Tighten Credit

Federal Reserve will use new tool to boost interest it pays banks
By Newser Editors and Wire Services
Posted Feb 10, 2010 2:15 PM CST
Bernanke Reveals Plan to Tighten Credit
Ben Bernanke speaks at the Federal Reserve Sixth Biennial Community Affairs Research Conference in Washington in this file photo.   (AP Photo/Alex Brandon, file)

Ben Bernanke has begun outlining the Fed's strategy for reeling in stimulus money once the economy has recovered further, telling the House Financial Services Committee today that the Reserve will likely increase the interest rate it pays banks that deposit money with it. That would encourage banks to leave more money there, and increase the rate they charge consumers and businesses.

Bernanke said the tightening was still some months off, because the economy hadn't fully recovered. Paying interest on the reserves is a relatively new tool for the Fed, having been authorized by a 2008 law. Many foreign central banks rely on it. Bernanke didn't actually speak before the House committee, which canceled the hearing under the threat of a major snowstorm, but he released his statement in writing because of investor interest. (More Ben Bernanke stories.)

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