Ben Bernanke Testimony Notes

 (US) Fed Chairman Bernanke: Reiterates reducing QE asset purchases will most likely begin later this year, program will most likely be completed in 2014

– Pace of bond buying is by no means on a preset course. Current plan is the likely trajectory of the program if the economy evolves as projected. Fed could leave QE buys at current level or even increase them if warranted by a worsening jobs market, inflation that refuses to move back toward 2% or tight financial conditions. If the economy performs better than expected, the Fed could start pulling back on bond purchases more quickly. 

– Reiterates interest rates will remain near zero at least as long as unemployment remains above 6.5% and inflation remains well behaved. If it emerges that a substantial part of the decline in unemployment is due to a cyclical decline in labor force participation, the Fed will not likely raise rates. 

– Reiterates that the Fed’s various thresholds are not triggers for changes in monetary policy [*Note: contrasts with recent comments from 2 Fed hawks who are proponents of using the thresholds as triggers]. 

– Fed remains well aware that very low inflation increases the risks of outright deflation, to continue watching this situation closely. Very low inflation is most likely to be transitory. 

– Higher taxes and federal spending cuts could still provide a larger-than-expected drag on US growth.