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Forex News – Bernanke reiterates Fed tapering depends on data
July 18, 2013 8:01 amVideo
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Federal Reserve Chief Ben Bernanke gave his testimony on the U.S. economy to the U.S. Congress on Wednesday, providing nothing new as he reiterated that the Fed will slow asset purchases later this year as long as the economic data improve.
“Our asset purchases depend on economic and financial developments, but they are by no means on a preset course,” Bernanke said.
The Fed Chairman stressed that the current $85 billion monthly pace of bond purchases could be reduced “somewhat more quickly” if economic conditions improved faster than expected. On the other hand, it “could be maintained for longer” if the labour market outlook darkened, or inflation did not appear to be rising toward the Fed’s 2 percent goal.
“Indeed, if needed, the (Fed’s policy) committee would be prepared to employ all its tools, including an increase (in) the pace of purchases for a time, to promote a return to maximum employment in a context of price stability,” he added.
With reference to interest rates Bernanke said any rate hike cycle would be gradual.
“We intend to be very responsive to incoming data, both in terms of our asset purchases – but it’s also important to understand that our overall policy, including our rate policy, is going to remain highly accommodative,” Bernanke said.
On speaking about the U.S. economy, Bernanke said the recovery was continuing at a moderate pace.
“With the recovery still proceeding at only a moderate pace, the economy remains vulnerable to unanticipated shocks, including the possibility that global economic growth may be slower than currently anticipated,” Bernanke said.
The central bank head explained that a generally stronger housing sector, which was helping conditions in the labour market improve gradually, is helping the U.S. economic recovery.
However he noted that the Fed felt the risks to the economy had decreased since the fall. He also said higher taxes and cuts in federal spending could exert a larger drag on growth than expected, and that worsening conditions overseas could hurt conditions back home.
Markets reacted positively to Bernanke’s comments as equity markets rallied while the dollar strengthened against most rivals.
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