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Bernanke unflappable over policy

Feb. 26, 2013 at 12:51 PM   |   Comments

WASHINGTON, Feb. 26 (UPI) -- U.S. Federal Reserve Chairman Ben Bernanke told lawmakers Tuesday the central bank would stick to its benchmarks on monetary policy.

The Fed announced in December it would maintain its historically low federal fund rate in place until the unemployment rate dropped to 6.5 percent. It is currently at 7.9 percent.

The Fed also said it would continue with asset purchases at the rate of $85 billion per month until the employment situation improved.

The caveat was that both policies were subject to change if inflation drifted much higher than the central bank's target rate of 2 percent per year.

But investors were dismayed last week to read in meeting minutes for the Fed's late January Open Market Committee meeting policymakers were divided on the asset purchasing program.

That put the stock market in a tailspin, pulling the Dow Jones industrial average off a five-year peak.

But Bernanke did not mention any division among committee members in prepared comments for a semiannual policy report before the Senate Committee on Banking, Housing and Urban Affairs.

"The [Federal Open Market] Committee remains confident that it has the tools necessary to tighten monetary policy when the time comes to do so," Bernanke said.

He also said inflation "is currently subdued, and inflation expectations appear well anchored."

"The FOMC has indicated that it will continue purchases until it observes a substantial improvement in the outlook for the labor market in a context of price stability," he told panel members.

"Monetary policies may increase certain types of risk-taking, in the present circumstances they also serve in some ways to reduce risk in the system, most importantly by strengthening the overall economy."

Bernanke also noted that pulling back on asset purchases as the recovery became more solid would affect the federal budget.

Due to its $3 trillion portfolio, "remittances have roughly tripled in recent years, with payments to the Treasury totaling approximately $290 billion between 2009 and 2012," Bernanke said.

A stronger economy would mean less need for interest rate lowering purchases. In turn, "these remittances would likely decline in coming years," he said.

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