The Federal Reserve will put its Term Asset-Backed Loan Facility into action any day now, Federal Reserve Chairman Ben Bernanke said on Wednesday.
Taking questions from reporters in Washington D.C. following a speech, Bernanke said "if we don't stabilize the banking system and get the credit markets moving again, then the other programs that we're doing are not going to be sufficient."
Bernanke said the Fed is trying to aid all sectors, which need credit to begin flowing. "We're not aiming narrowly," he said.
Bernanke responded to comments by former Fed Chairman Alan Greenspan in the Financial Times that some U.S. banks may have to be nationalized, saying any nationalization couldn't be maintained by the government over a long period of time.
"There is a very strong commitment on the part of the administration to try and keep banks private or return them to private hands as quickly as possible," he said.
Bernanke defended the Fed's spending on stimulus packages and the security of U.S. government bonds, which some speculate China - the single largest holder of U.S. bonds - may stop buying.
Bernanke said U.S. bonds are still a secure investment.
"In the near term we have a large deficit, we're going to have to do a lot of borrowing," he said, adding that the U.S. has to come up with a plan to revive its budget, "once we have stopped the bleeding."
Bernanke said the Federal Reserve will being releasing long-term forecasts in its minutes, starting with the release of the FOMC's Jan. 28 meeting minutes Wednesday.
In his speech prior to the question and answer period, Bernanke touted the effectiveness of unconventional measures recently taken by the Fed and also the Fed's preparedness to exit them.
He said the Fed took on "exceptionally low" risk with recent actions - which have included buying commercial paper and mortgage debt - given that the assets pay interest.
Bernanke said the Fed's balance sheet can be made smaller, and quickly, but that the timing depends on the pace of the recovery in financial markets and the U.S. economy.
Once the Fed is ready to exit these measures, it may add additional tools to control the Fed Funds Rate, he said. Once a recovery takes place, the target rate will be increased.
Bernanke said that so far, he believes Fed actions beyond the target rate - now near zero - have gone a long way to improving credit availability. He said the Fed will sell Bear Stearns and AIG assets over time.
By Megan Ainscow and edited by Stephen Huebl
©CEP News Ltd. 2009