Bernanke: No Firm Decision on When to End Bond Buying

federal reserve chairman ben bernanke testimony congress house financial services committee
Andrew Harrer/Bloomberg via Getty Images

WASHINGTON -- Chairman Ben Bernanke said Wednesday that the Federal Reserve's timetable for reducing its bond purchases isn't on a "preset course" and the Fed could increase or decrease the amount based on how the economy performs.

Bernanke told lawmakers that the job market has made some progress since the Fed began buying $85 billion a month in bonds in September, as part of his mid-year economic report to Congress. And he repeated his belief that the Fed could slow that pace later this year if the economy strengthens.

But 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 more borrowing and spending.

He also noted that a number of other factors could influence the Fed's interest rate policies. U.S. economic growth could be restrained further by a weaker global economy or federal spending cuts and tax increases. Inflation could remain well below the Fed's 2 percent target. And the unemployment rate could drop because people are leaving the workforce -- not because they are getting jobs.

"Because our asset purchases depend on economic and financial developments, they are by no means on a preset course," he told the House Financial Services Committee during the first of two days of testimony this week on the Fed's semi-annual report.

Stocks edged higher during Bernanke's testimony. And the yield on the benchmark 10-year Treasury note fell to 2.47 percent, down from 2.55 percent before Bernanke's comments were made public.

Paul Dales, senior U.S. economist for Capital Economics, said Bernanke's remarks didn't alter his view that the Fed would likely start reducing its bond purchases in September and end them completely by the middle of next year. But Dales said that would be contingent on how the economy's health.

"We don't think this forward guidance could be much clearer," Dales said.

Calming Jittery Financial Markets

Bernanke's remarks were his latest attempt to calm markets, which have gyrated wildly since the Fed's June meeting.

The Dow Jones industrial average (^DJI) plunged 560 points after Bernanke first indicated at the post-meeting news conference on June 19 that the Fed could slow the bond purchases later this year. Since then, various Fed officials have tried to assure investors that any reduction would be based on stronger growth and improvement in the job market -- not a target date. That helped restore investor confidence and the Dow and other market indicators have climbed to new highs.

On Wednesday, Bernanke said investors are starting to digest the Fed's guidance. He said it was important to provide a road map of the Fed's possible moves so that investors don't expect the bond purchases to continue indefinitely.

"I think the markets are beginning to understand our message," he said during the hearing.

The job market 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, 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.

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 Bernanke 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.

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.

Economic Growth

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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Oh my. I see my communist friends Teapot and Mao were posting their usual out of control outrageous and outlandish comments. They do so seem to struggle controlling their bad behavior darlings. Although controlling our bad behavior is something most of us liberals seem to have difficulty with dears.

July 17 2013 at 6:57 PM Report abuse rate up rate down Reply

Abortion control is great!!!! Gun control is bad!!!! Abortion is murder!!!!! Mass murders at schools, just an unfortunate circumstance of a bad gun owner, but necessary to protect my gun rights!!! Tea Party forever!!! Motorcycle safety and abortion control forever, background checks never!!!

Palin/Cheney 2016!!!

July 17 2013 at 6:28 PM Report abuse rate up rate down Reply
1 reply to teapotparty11's comment

Gosnell/fluk 2016

July 17 2013 at 8:54 PM Report abuse rate up rate down Reply

Beijing will decide when it ends. 2017 the Great People's Republic will be number one economy in the world. Americas rapid decline will continue as she ships her manufacturing base out of the country for profits for the rich and stays in her useless wars. Americas service based economy will collapse.

July 17 2013 at 5:18 PM Report abuse rate up rate down Reply
1 reply to mchairmanmao's comment


July 17 2013 at 8:56 PM Report abuse rate up rate down Reply

We all know this stuff itemized above.
At least someone is trying to work on some solutions rather than just being a crybaby and wetting the bed.
I don't think we can have full employment and lower inflation today. These are simply mutually exclusive events...

July 17 2013 at 11:25 AM Report abuse +1 rate up rate down Reply

Back in 1980, less than 30% of all jobs in the United States were low income jobs. Today, more than 40% of all jobs in the United States are low income jobs.

So where will it end?

Will 50 percent or 60 percent of all Americans soon be working low income jobs?

At this point, approximately one out of every four jobs in America pays $10 an hour or less.

Could your family survive on $10 an hour?

The Rising Cost Of Living

As middle class incomes go down, the cost of almost everything that middle class families buy continues to go up.

The Federal Reserve claims that it has kept inflation "low" for decades, but that is a giant lie.

When you take a look at the long-term picture, it is amazing how much prices have changed.

Back in 1950, the average price of a new car was $1,510.

Today, the average price of a new car is $30,748.

In 1967, yearly tuition at Yale was $1,950.

Today it is $38,300.

And inflation continues to take a great toll on the paychecks of middle class families.

For example, electricity bills in the U.S. have risen faster than the overall rate of inflation for five years in a row.

Also, the price of gas has risen by more than 100 percent since Barack Obama entered the White House and the average U.S. household spent a staggering $4,155 on gasoline during 2011.

The Destruction Of Middle Class Wealth

What is the number one financial asset for most middle class families?

Most middle class families don't have a lot of stocks, bonds or other financial assets.

Instead, normally the family home is the number one financial asset for most middle class families, and in recent years the value of that asset has been absolutely decimated.

When you take inflation into account, housing prices have fallen all the way back to 1998 levels.

July 17 2013 at 11:09 AM Report abuse -4 rate up rate down Reply
3 replies to rich_paddlyrich's comment

When the US Dollar is no longer the world currancy of exchange the United States economy will tank. This admistrations policy of printing money is a disaster in the making. That has been donemany times by other countries and the net effect was economic crash. This spending has to end. You cant continue to spend build up debt. Eventually all debts must be setlled.

July 17 2013 at 11:08 AM Report abuse +3 rate up rate down Reply

Who is the biggest loser in the ongoing decline of the U.S. economy? Is it the wealthy? No, the stock market has been soaring lately and their incomes are actually going up. Is it the poor? Well, the poor are definitely hurting very badly, but when you don't have much to begin with you don't have much to lose. Unfortunately, it is the middle class that has lost the most during this economic downturn. According to Bloomberg, 95 percent of the jobs lost during the recession were middle class jobs. That is an absolutely astounding figure. Yes, some executives lost their jobs during the last recession as did some minimum-wage workers. But overwhelmingly the jobs that were lost were middle income jobs. Sadly, the limited number of jobs that have been added since the end of the last recession have mostly been low income jobs. A higher percentage of Americans are working low income jobs than ever before, and the cost of living continues to rise at a very brisk pace. This is causing an erosion of the middle class unlike anything we have ever seen in American history.

When I was growing up I was taught that the fact that we had the largest middle class in the history of the world was evidence that our economic system was working incredibly well.

So what does the fact that the middle class is shrinking at a very rapid pace at this point say about how well our economy is working?

July 17 2013 at 10:58 AM Report abuse rate up rate down Reply
1 reply to rich_paddlyrich's comment

As a candidate in 2008, Obama blamed the reversals largely on the policies of Bush and other Republicans. He cited census figures showing that median income for working-age households -- those headed by someone younger than 65 -- had dropped more than $2,000 after inflation during the first seven years of Bush’s time in office.

July 17 2013 at 11:08 AM Report abuse -1 rate up rate down Reply
3 replies to rich_paddlyrich's comment

As some know. Bernanke is keeping rates down. But, we need higher rates to, in part, prevent dollar from going bankrupt. Since 2008, the dollar has lost half its value. Bernanke knows this increases poverty as weaker dollar results in higher prices for all. It is conundrum for him. It has not created desired effect of stimulating economy. It drives up stock market as most in world sell weakening dollars and buy best dollar hedge - stocks. 40% price increase is call "Obama tax."

July 17 2013 at 10:31 AM Report abuse -2 rate up rate down Reply

OY VEY......

July 17 2013 at 10:27 AM Report abuse +1 rate up rate down Reply