Federal Reserve Chairman Ben Bernanke said on Wednesday the U.S. central bank still expects to start scaling back its massive asset purchase program later this year, but left open the option of changing that plan in either direction if the economic outlook shifted.
While sticking closely to a time line he first outlined last month that the Fed would halt bond buying by mid-2014, when unemployment was projected to be around 7 percent, Bernanke went out of his way to stress that nothing was set in stone.
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"Our asset purchases depend on economic and financial developments, but they are by no means on a preset course," he told the U.S. House of Representatives Financial Services Committee in prepared remarks.
Bernanke's semi-annual statement to Congress, which may be his last if the chairman steps down when his term ends in January, as many expect, will be followed by a lengthy question and answer session with the committee's members.
Bernanke said the pace of asset purchases could be reduced "somewhat more quickly" if economic conditions were to improve faster than expected. On the other hand, the current $85 billion monthly pace "could be maintained for longer" if the labor market outlook darkened, or inflation did not look like it was rising back toward the Fed's 2 percent goal.
"Indeed, if needed, the Committee would be prepared to employ all its tools, including an increase (in) the pace of purchases for a time, to promote a return to maximum employment in a context of price stability," the chairman said, referring to the policy-setting Federal Open Market Committee.
The Fed has held interest rates near zero since late 2008 and more than tripled the size of its balance sheet to over $3.3 trillion through three rounds of massive bond buying aimed at lowering long-term borrowing costs to support growth and lower U.S. unemployment which was a lofty 7.6 percent in June.
Bernanke said the economic recovery was continuing at a moderate pace thanks to a stronger housing sector, which was helping conditions in the labor market improve gradually, and repeated the Fed felt the risks to the economy had decreased since the fall.
But he said higher taxes and cuts on federal spending could still turn out to exert a larger drag on U.S. growth than expected, and that worsening conditions overseas could still hurt conditions back home.
"With the recovery still proceeding at only a moderate pace, the economy remains vulnerable to unanticipated shocks, including the possibility that global economic growth may be slower than currently anticipated," he said.
(Reporting by Alister Bull and Pedro da Costa; Editing by Neil Stempleman)