FEDERAL RESERVE chairman Ben Bernanke said the US economy faces “unusually uncertain” prospects, and that the central bank was ready to take further steps to bolster growth if needed.
“Even as the Federal Reserve continues prudent planning for the ultimate withdrawal of monetary policy accommodation, we also recognise that the economic outlook remains unusually uncertain,” Mr Bernanke told the Senate Banking Committee.
“We remain prepared to take further policy actions as needed to foster a return to full utilisation of our nation’s productive potential in a context of price stability.”
Mr Bernanke, delivering the central bank’s semi-annual report to Congress on monetary policy, said Fed officials believe the US economy is still on a path to recovery.
“Although fiscal policy and inventory restocking will likely be providing less impetus to the recovery than they have in recent quarters, rising demand from households and businesses should help sustain growth,” Mr Bernanke said.
For now, he said the Fed expects economic conditions will warrant an exceptionally low benchmark federal funds rate for an “extended period” – repeating a vow the central bank has kept in place for more than a year.
Mr Bernanke stopped short of describing what steps the Fed might take if growth were to falter. Analysts say the central bank could resume asset purchases or lower the rate it pays banks to park their excess reserves at the Fed.
“The testimony was not particularly optimistic,” said Lawrence Glazer, managing partner of Mayflower Advisors in Boston. “It implied that the Fed had a relatively cloudy view of the future.”
Stocks turned lower to trade down modestly after the testimony was released, while the dollar extended losses versus the yen and US treasuries rallied, with the 30-year bond gaining a full point.
Stocks had risen on Tuesday in part on speculation the Fed could ease monetary conditions further.
After emerging from its longest and deepest downturn since the Great Depression, the US economy began expanding again about a year ago. It grew at an annualised 2.7 per cent in the first quarter.
But stubbornly high unemployment, a fresh drop in housing activity and a slowdown in manufacturing have raised fears of a “double dip” recession.
Mr Bernanke spent much of his testimony reviewing tools the Fed has at its disposal to remove the extraordinary monetary stimulus pumped into the economy during the 2007-2009 crisis.
He said there was broad agreement among Fed officials that asset sales will eventually play a role in withdrawing some of that accommodation. But he also noted that any such sales would be flagged well in advance.– (Reuters)
