- Associated Press - Wednesday, July 17, 2013

WASHINGTON (AP) — Federal Reserve Chairman Ben S. Bernanke says the central bank’s timetable for reducing its bond purchases is not on a “preset course” and the Fed could increase or decrease the amount based on how the economy performs.

In prepared remarks for a House hearing Wednesday, Mr. Bernanke said that the job market has made some progress since the Fed began buying $85 billion a month in bonds in September, and he repeted his belief that the Fed could slow that pace later this year if the economy strengthens.

But Mr. Bernanke cautioned that the Fed wants to see substantial progress in the job market before scaling back the bond purchases. If conditions worsen, the Fed could maintain its current pace or even increase it.

The bond purchases are intended to keep long-term interest rates low and encourage borrowing and spending.

Mr. Bernanke is delivering what could be his last midyear economic report to Congress. Many speculate that he will not seek a third term after his current four-year term ends in January.

His remarks, prepared for the House Financial Services Committee, largely represented a restatement of the views he and other Fed officials have been making in recent weeks to try and calm turbulent markets.

The Dow Jones industrial average plunged by 560 points in the two days after Mr. Bernanke‘s initial comments at a news conference following the Fed’s June meeting. Since then, various Fed officials have tried to assure investors that the Fed’s timetable is based on economic performance — and not a calendar date. That’s helped to restore investor confidence, and the Dow and other market indicators have climbed to new highs.

Hiring has improved since the Fed’s bond buying began. Employers have created an average of 202,000 jobs a month this year, up from 180,000 in the previous six months.

Still, unemployment remains elevated at 7.6 percent, and economic growth has been modest the past three quarters.

In his testimony, Mr. Bernanke again said “a highly accommodative monetary policy will remain appropriate for the foreseeable future” because unemployment remains high and inflation is below the Fed’s target of 2 percent.

Mr. Bernanke also repeated that the Fed plans to keep its benchmark short-term interest rate near zero as long as unemployment is above 6.5 percent. But he said the Fed could hold the rate lower even after it falls below 6.5 percent, particularly if unemployment falls because more people are leaving the workforce. The government counts people as unemployed only if they are actively looking for a job.

Mr. Bernanke said the economy is growing at “moderate pace” despite the adverse effects of tax increases and federal spending cuts. He noted that the housing market is rebounding and the job market has gradually improved.

“Despite these gains, the job situation is far from satisfactory,” he said.

The economy grew at a subpar 1.8 percent annual rate in the January-March quarter. Many economists think growth in the April-June quarter weakened to an annual rate of 1 percent or less. That would make the third straight quarter of a growth rate below 2 percent.

Many expect growth will rebound in the second half of this year.

The Fed forecasts that the economy will grow between 2.3 percent and 2.6 percent this year, which is more optimistic than many economists predict. The pickup in economic growth that Fed officials expect is based in part on an assumption that the adverse effects of the tax increases and government spending cuts will diminish over time. And it assumes that the overall risks to the economy are lower now than they were when the central bank began the latest bond-buying program.

But he said threats remained. The federal budget policies could restrain growth for longer than expected. Or a congressional battle later this year over raising the government’s borrowing limit could once again rattle investor and consumer confidence.



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