Federal Reserve Chairman Ben Bernanke told Congress on Tuesday that the Fed intends to keep its easy-money policies going until the job market improves significantly.
In his semi-annual report to Congress, Bernanke also said the Fed will carefully weigh the costs of its bond-buying program, such as inflation and excessive risk-taking by investors that could led to financial instability.
But Bernanke said he doesn't see the costs of risk-taking "as outweighing the benefits of promoting a stronger economic recovery and more-rapid job creation." Despite stronger job growth recently, he said "the job market remains generally weak."
Bernanke's remarks appeared intended in part to settle financial markets that have grown more concerned recently that the Fed will rein in its economic stimulus sooner than expected.
Worries that the Fed may soon end or reduce its $85 billion in monthly purchases of Treasury bonds and mortgage-backed securities-which are aimed at holding down long-term interest rates- arose last week after minutes of the Fed's Jan. 29-30 meeting were released.
The minutes showed that "many" Fed policymakers voiced concerns that the bond-buying posed risks, such as eventual inflation and financial instability. "A number" of officials said such hazards could prompt the Fed to "taper or end" the purchases before the job outlook gets substantially better, seemingly undercutting a roadmap the Fed has been emphasizing for months.
Stocks fell sharply last week after the minutes came out.
Bernanke also urged Congress and the White House to temper the $85 billion in automatic spending cuts slated to take effect March 1. He said such large cuts would put a "significant" near-term burden on the economy. Instead, he said Washington should devise a plan to address the nation's massive deficit by cutting the budget in a few years when the economy is stronger.
"Such an approach could lessen the near-term fiscal headwinds facing the recovery whle more effectively addressing the longer-term imbalances in the federal budget."