Course for bond rollbacks unclear
WASHINGTON — Chairman Ben Bernanke said Wednesday 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 economy performs.
Bernanke told lawmakers that the job market has made some progress since the Fed began buying $85 billion a month in bonds in September, as part of his midyear economic report to Congress. 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 for there to be 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. It's the first of two days of testimony this week on the Fed's semi-annual report.
Bernanke said that a number of factors could influence the Fed's thinking. U.S. 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 percent target. And the unemployment rate could drop because people are leaving the workforce — not because they are getting jobs.
Paul Dales, senior U.S. 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.
Bernanke's remarks expanded on the statements he and other Fed officials have made in recent weeks to try to calm turbulent markets.
The Dow Jones industrial average plunged by 560 points in the two days after Bernanke's initial comments at a news conference following the Fed's June meeting. Since then, various Fed officials have tried to assure investors that the Fed's timetable is based on economic performance — not a calendar date. That's helped to restore investor confidence, and the Dow and other market indicators have climbed to new highs.
Hiring has improved since the Fed's bond buying began. Employers have created an average of 202,000 jobs a month this year, up from 180,000 in the previous six months.
Still, unemployment remains elevated at 7.6 percent, and economic growth has been modest the past three quarters.
In his testimony, Bernanke again said “a highly accommodative monetary policy will remain appropriate for the foreseeable future” because unemployment remains high and inflation is below the Fed's target of 2 percent.
Bernanke also repeated that the Fed plans to keep its benchmark short-term interest rate near zero as long as unemployment is above 6.5 percent. But Bernanke said the Fed could hold the rate lower even after it falls below 6.5 percent, particularly if unemployment falls because more people are leaving the workforce.
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- Rise in pickup truck sales a good sign for economy
- Fix-a-flat a remedy in a pinch
- Auto sales heat up in July on steep discounts
- Auto review: Maserati Ghibli a sedan that awakens the senses
- Towing standard finally set
- SEC closes probe of Citi mortgage bonds
- HP to pay $32.5M to settle Postal Service dispute
- Hyundai recalls over 419K vehicles
- Harley recalls bikes for ignition switch problem
- Auto review: Grand Cherokee goes the distance
- Westinghouse wins deal to build nuclear power plant in Bulgaria