Bernanke tells Congress Fed flexible on bond buying

Wed Jul 17, 2013 1:48pm EDT
 
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By Alister Bull and Pedro da Costa

WASHINGTON (Reuters) - Federal Reserve Chairman Ben Bernanke said on Wednesday the U.S. central bank still expects to start scaling back its massive bond purchase program later this year, but he left open the option of changing that plan if the economic outlook shifted.

While sticking closely to a timeline to wind down the bond buying that he first outlined last month, Bernanke went out of his way to stress that nothing was set in stone.

"Our asset purchases depend on economic and financial developments, but they are by no means on a preset course," he told the House of Representatives Financial Services Committee.

Under the plan Bernanke laid out on June 19, the U.S. central bank would likely reduce its monthly bond buys later this year and halt them altogether by mid-2014, as long as the economic recovery unfolds as expected.

He did not depart from that guidance on Wednesday, but he said the current $85 billion monthly pace of 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 labor 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," Bernanke said.

The remarks lifted U.S. stock prices modestly and government debt prices also rose. The dollar firmed against the euro and the yen.

"There is something in these comments for everybody," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington. "Bernanke has done a good job of leaving himself plenty of maneuver room in terms of policy."   Continued...

 
U.S. Federal Reserve Chairman Ben Bernanke arrives to deliver his semi-annual monetary policy report to Congress before the House Financial Services Committee in Washington, July 17, 2013. REUTERS/James Lawler Duggan