Bernanke: Stimulus reduction should begin this year.
Federal Reserve Chairman Ben Bernanke said Wednesday that the U.S. central bank still expects to begin tapering its asset purchase program later this year, but left open the option of changing that plan in either direction if the economic outlook changes.
WASHINGTON, July 17 (Reuters) Federal Reserve Chairman Ben Bernanke said Wednesday that the U.S. central bank still expects to begin tapering its asset purchase program later this year, but left open the option of changing that plan in either direction if the economic outlook changes.
Although he maintained the timeline he detailed last month that the Fed will suspend bond purchases until mid-2014, when unemployment is projected to be around 7 percent, Bernanke stressed that nothing is predetermined.
"Our bond purchases depend on economic and financial developments, but they are by no means on a predetermined course," Bernanke told the House Financial Services Committee in prepared remarks.
Bernanke's semiannual statement to Congress, which may be his last if the chairman leaves office when his term ends in January, as many expect, will be followed by a lengthy question-and-answer session with committee members.
Bernanke said the pace of asset purchases could be reduced "a little more quickly" if economic conditions improve faster than expected. On the other hand, the current pace of $85 billion per month "could be maintained for longer" if the labor market outlook worsens, or if it appears that inflation is not rising back to the Fed's 2 percent target.
"In fact, if necessary, the Committee will be prepared to use all its tools, including increasing the pace of purchases for a time, to promote a return to maximum employment in a context of price stability," said the chairman, referring to the Federal Open Market Committee (FOMC).
The Fed has kept interest rates near zero since the end of 2008, and has more than tripled the size of its balance sheet to over $3,3 trillion through three rounds of massive bond purchases aimed at lowering long-term borrowing costs to support growth and reduce U.S. unemployment, which stood at 7,6 percent in June.
Bernanke said the economic recovery continues at a moderate pace, thanks to a stronger housing sector, which is helping to gradually improve labor market conditions, and reiterated that the Fed feels the risks to the economy have been diminishing since the downturn.
But the chairman stated that higher taxes and cuts in federal spending could still have a greater impact on US growth than expected, and that worsening external conditions could still harm the country's situation.
"With the recovery still progressing at a moderate pace, the economy remains vulnerable to unexpected shocks, including the possibility that global economic growth could be slower than currently expected," he said.