Today, Federal Reserve Chairman Ben Bernanke spoke before the House Financial Services Committee on the central bank's role in helping the still-slow economic recovery, emphasizing that the Fed will pull back its current round of monetary easing only when it feels economic conditions warrant a change. Beginning in September 2012, the Fed's latest round of quantitative easing, so-called "QE3," began with an open ended $40 billion per month purchase plan that has now been increased to $85 billion per month.
This volume of monetary easing is unprecedented and will have to be unwound eventually. The market has been keenly attuned to any and all information coming out of the Fed, especially since rumors of tapering quantitative easing began.
In his testimony, Bernanke explained that the current bond-buying program is "by no means on a preset course," and will be adjusted according to economic conditions:
I emphasize that, because our asset purchases depend on economic and financial developments, they are by no means on a preset course. On the one hand, if economic conditions were to improve faster than expected, and inflation appeared to be rising decisively back toward our objective, the pace of asset purchases could be reduced somewhat more quickly.
On the other hand, if the outlook for employment were to become relatively less favorable, if inflation did not appear to be moving back toward 2 percent, or if financial conditions--which have tightened recently--were judged to be insufficiently accommodative to allow us to attain our mandated objectives, the current pace of purchases could be maintained for longer. Indeed, if needed, the [Federal Open Market] Committee would be prepared to employ all of its tools, including an increase the pace of purchases for a time, to promote a return to maximum employment in a context of price stability.
As economist Paul Dales wrote, Bernanke is starting to get his message through to jittery markets:
Even though Fed Chairman Ben Bernanke just repeated the party line in a slightly different way in his semi-annual testimony to Congress today, the message that the tapering of [QE] is not set in stone and that the end of the asset purchases won't be immediately followed by higher interest rates is increasingly getting through to the markets
One House Republican articulated the common conservative concern that "we're out of control pumping the money." Rep. Gary Peters, D-Mich., meanwhile, pressed Bernanke on the monetary easing being employed in China and Japan.
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