Bernanke Tells Congress The Economy Still Needs Fed Stimulus

on May 22 2013 1:13 PM

The Federal Reserve must continue providing economic stimulus to keep the recovery going, but it could begin scaling back in coming weeks, Chairman Ben Bernanke told Congress Wednesday.

Despite a growing job market, Bernanke told the Joint Economic Committee that the Fed's practices of buying government bonds to help bolster the economy was crucial and testified that tightening monetary policies could upset the slow recovery.

"A premature tightening of monetary policy could lead interest rates to rise temporarily but would also carry a substantial risk of slowing or ending the economic recovery and causing inflation to fall further," he said.

Bernanke said the Fed was prepared to taper down its involvement in the economy if labor data show hiring increases in the coming weeks. But he said he didn't know if he would able to begin cutting back before Labor Day.

"It’s dependent on the data,” he said. “If the outlook for the labor market improves, we would respond to that.”

Bernanke said he was surprised when International Monetary Fund economists who recently met in Washington said the largest growth is still in the emerging markets. He said the United States "is now breaking away from the pack," notably from Europe and Japan.

"It was less than four years ago that the U.S. and the euro area had the same unemployment rate. We really have done better than some countries for a variety of reasons. ... We are moving in the right direction," the chairman said, pointing to the 7.5 percent U.S. rate versus about 12 percent in Europe.

Analysts had speculated in recent weeks that the Fed would reduce its bond purchases, after its governing committee said at a recent meeting that it was "prepared to increase or reduce the pace of its asset purchases." The $85 billion a month stimulus measures have fueled the economy since late 2008.

“In considering whether a recalibration of the pace of its purchases is warranted [the Fed] will continue to assess the degree of progress made toward its objectives in light of incoming information," Bernanke told the Joint Economic Committee.

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