Bernanke tells the Senate that the Fed is "not prepared" to face the crisis in the US.
On the second day of testimony, the Fed chairman dashed expectations of a relief package for the country.
Federal Reserve Chairman Ben Bernanke told a hearing before the Senate Banking, Housing and Urban Affairs Committee that the country's central bank "is not prepared to take further action" to support the recovery immediately, somewhat dampening growing expectations that the Fed will launch a third quantitative easing program (QE3).
Bernanke began his second day of testimony before the U.S. Senate being warned by Republican Senator Richard Shelby about inflation. Shelby stated that the Fed would be going "in the wrong direction" if it began a third round of bond purchases to boost the economy.
"The stage is set for a resurgence of inflation if the Fed isn't really careful," the senator stated. According to Shelby, the Fed's main challenge should be determining how to manage its balance sheet. "The last thing our economy needs right now is fear of inflation," he declared.
The Fed recently ended its $600 billion bond-buying program and has been outlining its exit from its current accommodative stance. However, in prepared speeches for two Senate hearings yesterday and today, Bernanke left open the possibility of further bond purchases.
"There is still a possibility that the recent weakness in the economy could prove more persistent than expected and that deflationary risks could resurface, which would imply the need for additional policy support," the official said.