Interest rates held at near-zero for longer than we anticipated, says Bernanke

Former Federal Reserve chairman Ben Bernanke on Tuesday said he never thought interest rates would have been held at near-zero for nearly a decade.

The Fed is widely expected to raise interest rates on Wednesday when it wraps up its two-day policy meeting. Most analysts have pencilled in a 25 basis point rise in interest rates to 0.50%.

“It would be a landmark decision given that rates have been at zero since 2008, which was longer than we anticipated,” Bernanke said in an interview with MarketWatch.

Bernanke said an interest rate increase would give the Fed more room to manoeuvre amid low inflation. The Fed is targeting 2% inflation. US inflation rose 0.5% in November from a year ago, the Bureau of Labor Statistics revealed on Tuesday.

While Bernanke noted that the market sees the Fed hiking interest rates, he remained mum on whether he expected such a move.

“I want to be careful about not second-guessing Janet Yellen. Nobody would like the person who formerly had their job publicly commenting on their decisions.”

However, he indicated that it would be appropriate to raise interest rates given the fall in unemployment and growth in the domestic economy.

Bernanke projected that the Fed will be cautious and gradual in any interest rate increases.

He said the key issue will be whether the domestic strength will be sufficient to overcome the headwinds from the global economy amid a slowdown in emerging markets.

“And I tend to be optimistic but it is clearly something we’re going to have to pay close attention to going forward,” he said.