Bernanke: Fed to Maintain Stimulus     05/22 12:23

   Chairman Ben Bernanke told Congress Wednesday that the U.S. job market 
remains weak and that it is too soon for the Federal Reserve to slow its 
extraordinary stimulus programs.

   WASHINGTON (AP) -- Chairman Ben Bernanke told Congress Wednesday that the 
U.S. job market remains weak and that it is too soon for the Federal Reserve to 
slow its extraordinary stimulus programs.

   Reducing the Fed's efforts to keep borrowing rates low would "carry a 
substantial risk of slowing or ending the economic recovery," Bernanke said in 
testimony to the Joint Economic Committee, a panel that includes members of the 
House and Senate.

   The Fed has been buying $85 billion a month in Treasury and mortgage bonds 
since September. That has helped lower long-term interest rates and encouraged 
more borrowing and spending.

   Lawmakers pressed Bernanke to explain when the Fed might start to scale back 
its purchases. Bernanke said the pace could be reduced over the next few 
meetings, if the job market shows "real and sustainable progress." And he 
wouldn't rule out curtailing the purchases by Labor Day.

   But Bernanke said that the Fed could just as quickly reverse course and pick 
up the pace if the economy falters.

   Most of his testimony focused on the many risks facing the economy, along 
with the benefits gained so far from the Fed's stimulus. His comments suggest 
the Fed is not ready to taper the bond purchases.

   Stocks surged after Bernanke spoke. The Dow Jones industrial average gained 
94 points in midday trading. It was up just 40 points before the hearing began 
at 10 a.m. EDT.

   Paul Ashworth, an economist at Capital Economics, said Bernanke's remarks 
suggest "he is in no hurry to curb" the bond purchases. Ashworth predicts the 
central bank will begin to trim the bond purchases toward the end of the year 
and end them completely in the first half of 2014.

   At the hearing, Bernanke declined to answer a direct question about whether 
he would consider serving another four-year term when his current term ends in 
January.

   The Fed has said it plans to continue its $85 billion-a-month in Treasury 
and mortgage bond purchases until the job market improves substantially. And 
after its April 30-May 1 meeting, the Fed said it could increase or decrease 
the pace depending on how the job market and inflation fare.

   Bernanke noted that the economy is growing moderately this year and 
unemployment has fallen to a four-year low of 7.5 percent. Still, unemployment 
remains well above levels consistent with healthy economies. And Bernanke said 
higher taxes and deep federal spending cuts are expected to slow economic 
growth this year.

   In recent months, the job market and the broader economy have shown renewed 
vigor. The economy has added an average of 208,000 jobs a month since November. 
That's up from only 138,000 a month in the previous six months.

   The economy has benefited from a resurgent housing market, rising consumer 
confidence and the Fed's stimulus actions, which have helped ignite a stock 
market rally. The Standard & Poor's 500 stock index has jumped 17 percent this 
year to a record high. Higher stock prices tend to make many people feel 
wealthier and more inclined to spend.

   Those gains, in part, are why critics of the bond purchases, including some 
Fed regional bank presidents, have questioned the need to continue them at 
their current pace. They argue that keeping interest rates too low for too long 
could send inflation surging or inflate dangerous bubbles in assets such as 
stocks or real estate. Such a bubble could burst with the same destabilizing 
effects that the housing bust caused.

   The panel's chairman, Rep. Kevin Brady, R-Texas, is among those critics. On 
Wednesday, he pressed Bernanke to explain when the Fed might begin to reduce 
its bond purchases.

   Bernanke said the Fed could take a "step down" if the job market shows "real 
and sustainable progress" over the next few meetings.

   When asked if that could happen before Labor Day, Bernanke responded: "I 
don't know. It will depend on the data."

   But Bernanke made clear that the Fed could also increase its purchases if 
the economy began to weaken. "We could raise or lower our purchases going 
forward," Bernanke said.

   Bernanke has had solid support for the bond purchases among the voting 
members of the Fed's interest-rate setting committee. At each of the Fed's 
three policy meetings this year, the committee has approved the purchases 11-1.


(KA)