Bernanke says Federal Reserve keeping bond purchase option open
Progress in US job market and growth outlook both open to change, says Fed Reserve chief
Associated Press in Washington
Chairman Ben Bernanke said yesterday that the Federal Reserve's timetable for reducing its bond purchases is not on a "preset course" and the Fed could increase or decrease the amount based on how the US economy performs.
Bernanke told lawmakers the job market has made some progress since the Fed began buying US$85 billion a month in bonds in September. And he repeated his belief that the Fed could slow that pace later this year if the economy strengthens. But Bernanke cautioned that the Fed wants to see substantial progress in the job market before scaling back the bond purchases. If conditions worsen, the Fed could maintain its current pace or even increase it. The bond purchases are intended to keep long-term interest rates low and encourage borrowing and spending.
"Because our asset purchases depend on economic and financial developments, they are by no means on a preset course," he told the House Financial Services Committee.
Bernanke said that a number of factors could influence the Fed's thinking. US economic growth could be restrained further by a weaker global economy or federal spending cuts and tax increases. Inflation could remain well below the Fed's 2 per cent target. And the unemployment rate could drop because people are leaving the workforce - not because they are getting jobs.
Paul Dales, senior US economist for Capital Economics, said Bernanke's comments did not alter his view that the Fed would likely start reducing its bond purchases in September and end them completely by the middle of next year. But Dales said this would be contingent on how the economy performs.
"We don't think this forward guidance could be much clearer," Dales said.