Bernanke says Fed pondering further stimulus

Wed Jan 25, 2012 5:50pm EST
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By Pedro da Costa and Mark Felsenthal

WASHINGTON (Reuters) - Federal Reserve Chairman Ben Bernanke said on Wednesday the central bank was ready to offer the economy additional stimulus after it announced it would likely keep interest rates near zero until at least late 2014.

The Fed also took the historic step of adopting an explicit inflation target, though Bernanke took pains to stress that officials would be flexible about reining in price growth when unemployment was too high.

The late 2014 timeframe for the first rate hike was considerably later than investors had expected and some 18 months later than the Fed had suggested last year, and the announcement prompted a rally in U.S. government bonds.

Speaking at a news conference after a two-day policy meeting, Bernanke was cautious about recent improvements in the U.S. economy, and he left the door open to further Fed bond purchases.

"I don't think we're ready to declare that we've entered a new, stronger phase at this point," Bernanke said. "If the situation continues with inflation below target and unemployment declining at a rate which is very, very slow, then ... the logic of our framework says we should be looking for ways to do more."

In response to the deepest recession in generations, the Fed slashed the overnight federal funds rate to near zero in December 2008. It has also more than tripled the size of its balance sheet to around $2.9 trillion through two separate bond purchase programs.

The policy is credited with preventing an even more devastating downturn, but it has been insufficient to bring unemployment down to levels considered normal during good economic times. Many Fed watchers expected a further round of bond buying, likely focusing on mortgage debt.

RANGE OF VIEWS   Continued...

<p>U.S. Federal Reserve Chairman Ben Bernanke gives testimony at a Joint Economic Committee hearing on the economic outlook, on Capitol Hill in Washington October 4, 2011. REUTERS/Jonathan Ernst</p>