By Jonathan Spicer
PHILADELPHIA — The Federal Reserve is no less committed to highly accommodative policy now that is has trimmed its bond-buying stimulus, Ben Bernanke said Friday in what could be his last speech as Fed chairman.
Bernanke, who steps down as head of the U.S. central bank at month’s end, gave an upbeat assessment of the U.S. economy in coming quarters. But he tempered the good news in housing, finance and fiscal policies by repeating that the overall recovery “clearly remains incomplete” in the United States.
In what came as a surprise to some, the Fed decided last month to cut its asset-purchase program, known as quantitative easing or QE, by $10 billion to $75 billion per month. It cited a stronger job market and economic growth in its landmark decision, which amounted to the beginning of the end of the largest monetary policy experiment ever.
But that decision “did not indicate any diminution of [the Fed’s] commitment to maintain a highly accommodative monetary policy for as long as needed,” Bernanke said at a American Economic Association forum in a snow-swept Philadelphia.
“Rather, it reflected the progress we have made toward our goal of substantial improvement in the labor market outlook that we set out when we began the current purchase program in September 2012,” he said according to prepared remarks.
To recover from the deep 2007-2009 recession,
the Fed has held interest rates near zero since late 2008. It also has quadrupled the size of its balance sheet to around $4 trillion through three rounds of massive bond purchases aimed at holding down longer-term borrowing costs.
The Fed’s extraordinary money-printing has helped drive stocks to record highs and sparked sharp gyrations in foreign currencies, including a drop in emerging markets last year as investors anticipated an end to the easing.
Looking into the years ahead, Bernanke said the central bank has the tools — including adjusting the rate on excess bank reserves and so-called reverse repurchase agreements, or repos — to return to a normal policy stance without resorting to asset sales.
“It is possible, however, that some specific aspects of the Federal Reserve’s operating framework will change,” he said.
On the economy, Bernanke noted unemployment remains elevated at 7 percent, and said the number of long-term unemployed Americans “remains unusually high.”
But “the combination of financial healing, greater balance in the housing market, less fiscal restraint, and, of course, continued monetary policy accommodation bodes well for U.S. economic growth in coming quarters,” he said.
“Of course, if the experience of the past few years teaches us anything, it is that we should be cautious in our forecasts.”
Last month, Bernanke, who is set to be succeeded by Fed Vice Chair Janet Yellen, said the purchases would likely be cut at a “measured” pace through much of this year if job gains continued as expected, with the program fully shuttered by late-2014.