Bernanke says Fed will back weak economy
Fed chairman’s Congress testimony does not signal ‘tapering’ by central bank this year
Federal Reserve chairman Ben Bernanke: “With unemployment still high and declining only gradually, and with inflation running below the committee’s longer-run objective, a highly accommodative monetary policy will remain appropriate for the foreseeable future.” Photograph: Reuters/Gary Cameron
Ben Bernanke said the US Federal Reserve would support a weak economy for the foreseeable future as he sought to calm fears that have rocked global financial markets in recent weeks.
In testimony to Congress yesterday, the Fed chairman said asset purchases would slow from $85 billion-a-month later this year if the economy stayed strong, but he argued that the Fed was not backing away from easy monetary policy with almost every other word.
His testimony does not signal a change in the Fed’s policy making committee or the likelihood of so-called “tapering” by the central bank this year, but should counter concerns that it has lost its will to support the economy.
“With unemployment still high and declining only gradually, and with inflation running below the committee’s longer-run objective, a highly accommodative monetary policy will remain appropriate for the foreseeable future.”
The yield on 10-year Treasuries has risen by a full percentage point since early May, but after Mr Bernanke’s remarks were published yesterday it dropped back below 2.50 per cent, down from 2.55 per cent before the release.
“I think the markets are beginning to understand our message and, you know, the volatility has obviously moderated,” said the Fed chairman.
In relatively strong language on the labour market, Mr Bernanke said “the unemployment rate remains well above its longer-run normal level, and rates of underemployment and long-term unemployment are still much too high”.
He also showed more concern about inflation than he did in June. “The committee is certainly aware that very low inflation poses risks to economic performance – for example, by raising the real cost of capital investment – and increases the risk of outright deflation,” said Mr Bernanke.
He went out of his way to argue that the Fed’s scenario for tapering down asset purchases would depend entirely on the performance of the economy. – Copyright The Financial Times Limited 2013