WASHINGTON – Federal Reserve Chairman Ben Bernanke told Congress on Wednesday that record-low interest rates are still needed to ensure that the economic recovery will 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.
The moderate economic growth the Fed expects will lead to only a slow decline in the nation's nearly double-digit unemployment rate, he said.
He offered no new clues about the timing of an interest rate increase. Most economists think it is months away. Bernanke said rates will need to stay at exceptionally low levels for an extended period "as the expansion matures."
Investors took Bernanke's remarks in stride on a morning when the government said sales of new homes fell to a record low in January and the Senate passed a bill intended to help create jobs. The jobs legislation would give tax breaks to businesses that hire the unemployed. In late-morning trading, the Dow Jones industrial average rose 81 points, or about 0.8 percent.
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. Unemployment stands at 9.7 percent, home foreclosures are at record highs and individuals and businesses are having trouble getting loans.
"Getting people back to work" is critical for the economy, said the committee's chairman, Rep. Barney Frank, D-Mass.
The Fed chairman reiterated a pledge that the Fed will keep its main interest rate at an all-time low near zero for an "extended period." The target range for Fed's main rate, the federal funds rate, has been between zero and 0.25 percent since December 2008.
At the same time, Bernanke sought to stress that when the economy is on firmer footing and the Fed needs to reverse course and tighten credit for millions of Americans, he will do so.
Deciding when to boost rates will be the next big challenge facing Bernanke. Boosting rates too soon could derail the recovery. But waiting too long could trigger inflation and feed a speculative asset bubble. That, too, could threaten the economy, along with Americans' pocketbooks and nest eggs.
Bernanke would only say that "at some point," the Fed will need to move to tighten credit. When it does, Bernanke sketched out the Fed's strategy, first unveiled on Feb. 10, for doing so.
He said the Fed is likely to boost the rate it pays banks on money they leave at the Fed, which would mark a shift away from the funds rate, the Fed's main tool since the 1980s. A bump-up in the interest rate on bank reserves, though, would ripple though the economy in much the same way an increase in the funds rates does. Consumer and businesses borrowers would have to pay more for loans.
With financial conditions improving, the Fed has been able to wind down most of its special lending programs for banks and others set up during the crisis.
One key economic revival program that has lowered mortgage rates and bolstered the housing market is slated to end on March 31. The Fed is on track to complete buying $1.25 trillion worth of mortgage securities from Fannie Mae and Freddie Mac at that time, and another $175 billion worth of debt from them.
Bernanke continued to leave the door open to a possible extension of the program if the economy were to take a turn for the worse.
The Fed's decision last week to raise the rate banks pay for emergency loans was part of a broader strategy to bring lending closer to normal now that the crisis is over, he said. The bump-up in the "discount" rate should not be seen as a signal that tighter credit for consumers and businesses is imminent, Bernanke added.
To help improve relations with Congress, Bernanke said the Fed will seek to be more open about its operations. He said it would support legislation to identify companies that used the Fed's special lending facilities — "after an appropriate delay." A delay in identifying the companies would help discourage investors from viewing a company as having financial troubles, he said.
But Bernanke said the confidentiality of banks drawing emergency loans from the Fed's "discount window" must be preserved. The Fed acts as lender of last resort for banks that can't get money from private sources. Bernanke said identifying banks that draw emergency loans could cause a run on those institutions and undermine the program. Healthy banks are key to a sound economy.
Rep. Ron Paul, R-Texas, who's led efforts in Congress to audit the Fed, accused it of a "cover up" involving details of bailed-out companies and users of its lending programs. Bernanke called those allegations "bizarre."
Pressed by Paul on whether the Fed has discussed a bailout of Greece, which is suffering a debt crisis, Bernanke said no.
Republicans on the panel, in particular, expressed concern about record-high federal budget deficits, which Bernanke agreed must be reduced over time.
The deficits are the "elephant in the room," said Rep. Spencer Bachus of Alabama, the committee's senior Republican.
Bernanke urged Congress to move ahead on revamping the nation's financial structure to prevent a repeat of the events that thrust the economy into recession in December 2007. The Fed is working to improve regulatory oversight and is developing a program to better police large bank holding companies, he said.
The Fed's lax regulation and failures to spot problems were blamed by lawmakers for contributing to the financial crisis. Some want to strip the Fed of its banking powers and place it under greater oversight. Bernanke opposes taking away the Fed's banking supervision, saying it would hurt its ability to carry out interest rate policy.
WASHINGTON – Akio Toyoda, the mysterious scion of the Toyota empire, is apologizing Wednesday before a House committee investigating deadly flaws that sparked the recall of 8.5 million cars.
Toyoda, the automaker's 53-year-old chief executive, says the company grew too fast to keep up with safety controls.
"We pursued growth over the speed at which we were able to develop our people and our organization," Toyoda said in testimony prepared for delivery Wednesday. "I regret that this has resulted in the safety issues described in the recalls we face today, and I am deeply sorry for any accidents that Toyota drivers have experienced."
An apology won't be enough for the feisty panel of lawmakers on the House Oversight and Government Reform Committee in a year in which every one faces re-election. Nor will any culture gap; Japanese CEOs typically serve symbolic roles akin to figureheads without much power to control operations.
Toyoda at first declined to appear before the panel but acquiesced last week when he was officially invited. He shouldn't expect an easy day.
"I'm naive enough to believe that a global CEO is a global CEO," said Rep. Paul Kanjorski, D-Pa., a member of the committee. "He's going to have to say more than that. We all have questions for him."
In harmony-loving Japan, company chiefs are usually picked to cheerlead the rank and file. As the grandson of the company's founder, Toyoda was groomed to play that role — and even dubbed "the prince" of the auto empire for a time.
Japanese corporate royalty or no, Toyoda is familiar with the United States and its corporate culture. He received his MBA in 1982 at Babson College in Massachusetts. He spent time in California as vice president of a joint venture between Toyota Motor Corp. and General Motors Corp., a period the Contra Costa Times described as a stint learning the family business while studying the American mind.
"We do not seek the spotlight," the casual Toyoda was quoted as saying in his first interview. "We try always to be low-key, not to be outspoken."
A dozen years later, the blood from dozens of claims over fatal crashes staining the family dynasty, Toyoda has no choice. A significant chunk of Washington's lobbying industry and some part of the struggling American economy hang on his appearance as it's broadcast around the world.
Japan's national Asahi newspaper said in an editorial that Toyoda's testimony "not only determines Toyota's fate, but may affect all Japanese companies and consumer confidence in their products. President Toyoda has a heavy load on his shoulders."
Toyoda, who speaks halting English, planned to appear with a translator by his side, as well as Yoshimi Inaba, president and CEO of Toyota Motor North America Inc., who is fluent in English.
Transportation Secretary Ray LaHood and David Strickland, the new head of the National Highway Traffic Safety Administration, also were expected to testify. Also scheduled to appear was the mother of an off-duty California highway patrolmen killed with three family members in a runaway Lexus on a San Diego highway in August.
LaHood defended NHTSA in his prepared testimony, saying it has acted aggressively to force Toyota to address safety problems. He told lawmakers Tuesday that the agency is looking closely at whether electronics are to blame.
"We will get in the weeds on this," he testified.
Lawmakers indicated they will continue to push Toyoda for answers on whether his company's top-selling cars and trucks are safe to drive. The Transportation Department's vehicle safety division also faces continued questions over whether it took the problem seriously enough and paid attention to warnings signs with Toyotas long before the recalls.
Toyoda's three-page statement departs somewhat from his native formality. In it, Toyoda emphasizes that he personally test-drives Toyotas. And he makes a personal appeal for credibility.
"My name is on every car," he says.
Associated Press staff writers Alan Fram and Sonya Ross contributed to this report.
MILAN – Three Google executives were convicted of privacy violations Wednesday in Italy because bullies posted a video online of an autistic boy being abused — a case closely watched due to its implications for Internet freedom.
In the first such criminal trial of its kind, Judge Oscar Magi sentenced the three to a six-month suspended sentence and absolved them of defamation charges. A fourth defendant, charged only with defamation, was acquitted.
Google called the decision "astonishing" and said it would appeal.
"The judge has decided I'm primarily responsible for the actions of some teenagers who uploaded a reprehensible video to Google video," Google's global privacy counsel Peter Fleischer, who was convicted in absentia, said in a statement.
The trial could help define whether the Internet in Italy is an open, self-regulating platform or if content must be better monitored for abusive material.
Google, based in Mountain View, California, had said it considered the trial a threat to freedom on the Internet because it could force providers to attempt an impossible task — prescreening the thousands of hours of footage uploaded every day onto sites like YouTube.
"We will appeal this astonishing decision," Google spokesman Bill Echikson said at the courthouse. "We are deeply troubled by this decision. It attacks the principles of freedom on which the Internet was built."
Convicted of privacy violations along with Fleischer were Google's senior vice president and chief legal officer David Drummond, retired chief financial officer George Reyes. Senior product marketing manager Arvind Desikan was acquitted.
Prosecutors had insisted the case wasn't about censorship but about balancing the freedom of expression with the rights of an individual.
Prosecutor Alfredo Robledo said he was satisfied with the decision and that Google will now have to consider better monitoring its video.
The charges were sought by Vivi Down, an advocacy group for people with Down syndrome. The group alerted prosecutors to the 2006 video showing an autistic student in Turin being beaten and insulted by bullies at school. In the footage, the youth is being mistreated while one of the teenagers puts in a mock telephone call to Vivi Down.
Google Italy, which is based in Milan, eventually took down the video, though the two sides disagree on how fast the company reacted to complaints. Thanks to the footage and Google's cooperation, the four bullies were identified and sentenced by a juvenile court to community service.
The events shortly preceded Google's 2006 acquisition of YouTube.
All four executives, who were tried in absentia, denied wrongdoing. None was in any way involved with the production of the video or uploading it onto the viewing platform, but prosecutors argued that it shot to the top of a most-viewed list and should have been noticed.