Federal Reserve Chairman Ben Bernanke said the central bank anticipates beginning tapering bond purchases later this year but that policy will remain accommodative.
In prepared remarks for his semiannual monetary report before the US House financial services committee, the Fed chairman said, "With unemployment still high and declining only gradually, and with inflation running below the Committee's longer-run objective, a highly accommodative monetary policy will remain appropriate for the foreseeable future."
Bernanke said that if the incoming economic data confirms a strengthening labor market and inflation moving back toward the central bank's 2 percent target, "We anticipated that it would be appropriate to begin to moderate the monthly pace of purchases later this year." But he emphasized that this plan is not a "preset course."
He also reiterated previous remarks that the central bank could continue to reduce the pace of asset purchases through the first half of next year, ending them around midyear so long as the economy continues to improve and inflation normalizes.Bernanke also sought to draw the distinction between reducing asset purchases and providing accommodative monetary policy, saying "We are relying on near-zero short-term interest rates, together with our forward guidance that rates will continue to be exceptionally low—our second tool—to help maintain a high degree of monetary accommodation for an extended period after asset purchases end, even as the economic recovery strengthens and unemployment declines toward more-normal levels."
Bernanke will deliver his testimony at 10 am, with investors likely to focus more intently on the question and answer session that will follow.
Bernanke's comments on Wednesday echoed statements the central bank chairman made last week when he told attendees at a conference sponsored by the National Bureau of Economic Research that monetary policy will remain accommodative for the "foreseeable future."
That helped soothe markets worried about the pace at which the Federal Reserve would begin withdrawing monetary stimulus and whether reducing the bond-buying program meant an end to accommodative monetary policy.
Bernanke said that if the incoming economic data confirms a strengthening labor market and inflation moving back toward the central bank's 2 percent target, "We anticipated that it would be appropriate to begin to moderate the monthly pace of purchases later this year." But he emphasized that this plan is not a "preset course."
He also reiterated previous remarks that the central bank could continue to reduce the pace of asset purchases through the first half of next year, ending them around midyear so long as the economy continues to improve and inflation normalizes.Bernanke also sought to draw the distinction between reducing asset purchases and providing accommodative monetary policy, saying "We are relying on near-zero short-term interest rates, together with our forward guidance that rates will continue to be exceptionally low—our second tool—to help maintain a high degree of monetary accommodation for an extended period after asset purchases end, even as the economic recovery strengthens and unemployment declines toward more-normal levels."
Bernanke will deliver his testimony at 10 am, with investors likely to focus more intently on the question and answer session that will follow.
Bernanke's comments on Wednesday echoed statements the central bank chairman made last week when he told attendees at a conference sponsored by the National Bureau of Economic Research that monetary policy will remain accommodative for the "foreseeable future."
That helped soothe markets worried about the pace at which the Federal Reserve would begin withdrawing monetary stimulus and whether reducing the bond-buying program meant an end to accommodative monetary policy.
In May, Bernanke spooked markets when he told Congress that the central bank could start to reduce its USD 85 billion per month in bond purchase within in the next few meetings, leading markets to anticipate a reduction in bond buying as early as September. He later said that the bond-buying could eventually end by mid-2014.
But while the Fed may be weighing a reduction in its asset purchases, Bernanke has indicated the Fed is unlikely to raise interest rates anytime soon given the weak labor market and low inflation.
Inflation remains below the Fed's 2 percent target, and the 7.6 percent unemployment rate is also below the 6.5 percent threshold the Fed set before it would start raising interest rates.
According to the Fed's forecasts from the June meeting, unemployment is expected to be about 7.2 percent to 7.3 percent by the end of 2013 and 6.5 percent to 6.8 percent by the end of 2014.
GDP growth is also expected to be 2.3 percent to 2.6 percent this year before accelerating to 3.0 percent to 3.5 percent next year
Source- moneycontrol
According to the Fed's forecasts from the June meeting, unemployment is expected to be about 7.2 percent to 7.3 percent by the end of 2013 and 6.5 percent to 6.8 percent by the end of 2014.
GDP growth is also expected to be 2.3 percent to 2.6 percent this year before accelerating to 3.0 percent to 3.5 percent next year
Source- moneycontrol
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