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Bernanke says Fed’s bond purchases aren’t on ‘preset course’

By Craig Torres and Joshua Zumbrun, Bloomberg

July 17, 2013 • Reprints

Federal Reserve Chairman Ben S. Bernanke said the central bank’s asset purchases “are by no means on a preset course” and could be reduced more quickly or expanded as economic conditions warrant.

“The current pace of purchases could be maintained for longer” if inflation remained too low, the outlook for employment became less favorable or “financial conditions -- which have tightened recently -- were judged to be insufficiently accommodative to allow us to attain our mandated objectives,” Bernanke said today to the House Financial Services Committee.

If the economy improved faster than expected, and inflation rose back “decisively” toward the central bank’s 2% target, “the pace of asset purchases could be reduced somewhat more quickly,” the 59-year-old Fed Chairman said in prepared testimony. The Fed would also be prepared to increase the pace of purchases “for a time, to promote a return to maximum employment in a context of price stability.”

The Fed chairman’s remarks highlight the Federal Open Market Committee’s desire to assure that the economy and labor markets have sufficient momentum before reducing its $85 billion in monthly bond purchases. Treasury yields have jumped since June 19, when Bernanke outlined a possible timetable for tapering purchases.

‘Baseline Tapering’

“Clearly what happened in the markets after June was well beyond what they intended, and they’re trying to pull it back,” said Julia Coronado, chief economist for North America at BNP Paribas SA in New York and a former Fed board staff economist. “He has chosen to emphasize the conditionality of the baseline tapering forecast on data -- and not just employment data but growth, inflation and importantly, financial conditions.”

Treasuries and stocks rose after the testimony was released. The yield on the 10-year Treasury note fell to 2.47% at 9:59 a.m. in New York from 2.55% before the testimony. The Standard & Poor’s 500 Index rose 0.3% to 1,680.42.

The 10-year yield rose as high as 2.74% this month from 1.93% on May 21, the day before Bernanke said the FOMC may trim its bond buying in its “next few meetings” if officials see signs of sustained improvement in the labor market.

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US Federal Reserve 8527bank 6455Bloomberg 5254financials 2975Standard & Poor 2008Economy 1513Barack Obama 909JPMorgan Chase & Co. 818Federal Open Market Committee 773Qe 751Ben S. Bernanke 751Ben S 613Senate 610Massachusetts 585Stimulus 475employment 474Inflation 395Virginia 354Freddie Mac 332Bernanke 308electronics 284BNP Paribas SA 224Richard Fisher 128Retail sales 126Charles Plosser 116House Financial Services Committee 90Congress 88Jeffrey Lacker 74Esther George 38bank presidents 21Chesapeake 19General Mills Inc. 12Julia Coronado 12Dollar Tree Inc. 8Bob Sasser 2Kendall J. Powell 1

Free Newsletter Modern Trader Follow

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