U.S. Federal Reserve chairman Ben Bernanke.KEVIN LAMARQUE/Reuters
Ben Bernanke, chairman of the Federal Reserve, is in no hurry to wind down the central bank's asset purchases any time soon – providing few surprises in testimony before the Joint Economic Committee of Congress. But it was a source of relief nonetheless.
In late morning trading, the S&P 500 was up more than 7 points or 0.4 per cent, to 1676 – though stocks had been up prior to Mr. Bernanke's testimony.
"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.
The testimony follows some upbeat U.S. economic news recently, including low weekly initial jobless claims, a falling unemployment rate and better-than-expected monthly payroll gains.
The upbeat news has been raising the issue of when the Fed will start to withdraw the extraordinary economic stimulus it has used in recent years. Besides ultra-low interest rates, the Fed has also resorted to the purchase of U.S. Treasury bonds and mortgage-backed securities – currently at a pace of $85-billion (U.S.) a month – in a program known as quantitative easing. Some observers believe these purchases should be scaled back because the benefits no longer outweigh the risks.
Despite Mr. Bernanke's testimony, observers remain divided over which direction Fed policy will go. Here are a few comments that followed the start of his prepared remarks.
Paul Ashworth, Capital Economics: "All things considered, we still think that the Fed will begin to curb its asset purchases before the end of the year, with a complete halt some time in the first half of next year."
Avery Shenfeld, CIBC World Markets: "Overall, the news in this statement is that there is no news, with Bernanke not yet wanting to hint at thoughts on when curtailing QE is likely to begin."
Michael Gregory, BMO Nesbitt Burns: "As we expected, Fed Chairman Ben Bernanke said nothing profound nor provocative in prepared testimony before the Joint Economic Committee (we judge that such pronouncements are now probably reserved for post-FOMC news conferences)."
David Berman