Mr. Bernanke, appearing before the Senate one day after he testified before the House, largely repeated the themes and often the words of Wednesday’s testimony.
He said that the Fed had not slackened in its commitment to stimulate the economy — it will cut back only if the economy is making progress. He chastised Congress, saying it was impeding economic growth. And he demurred from talking about his own future, choosing instead to listen quietly as senator after senator treated the hearing like a goodbye party.
This may have been Mr. Bernanke’s final appearance before Congress as Fed chairman. It is widely expected that he will step down in January.
His last decision is when the Fed should begin to reduce its stimulus efforts. The Fed is buying $85 billion a month in Treasuries and mortgage-backed securities.
Mr. Bernanke said on Thursday that the Fed had concluded that such purchases, aimed at reducing long-term interest rates, do less to bolster the economy than the Fed’s traditional focus on reducing short-term rates. He also suggested that in announcing a timeline for tapering last month, the Fed had succeeded in tempering risk-taking in financial markets.
But he once again resisted the idea that the Fed was lowering its sights.
“Isn’t it still way too soon to consider any kind of policy tightening?” Senator Robert Menendez of New Jersey asked Mr. Bernanke, citing the persistently high level of unemployment and the absence of inflationary pressures.
Mr. Bernanke responded that the Fed was changing its approach, not its goals. In testimony, he underscored that the central bank had other tools at its disposal, besides asset purchases.
“I think that we will be able to maintain that high level of accommodation ultimately through rate policy and, you know — and by holding a very large balance sheet,” he said.
Some economists, including Adam S. Posen, president of the Peterson Institute for International Economics, argue that the Fed is making the wrong choice. Mr. Posen describes the Fed’s statements about its plans to hold down interest rates as “cheap talk,” and says it should continue with bond-buying instead.
A further complication for the Fed is that Mr. Bernanke’s likely departure is beginning to erode his credibility as a spokesman about the Fed’s future plans.
Mr. Bernanke has said that the Fed expects to reduce its bond-buying later this year, and to end purchases by the middle of next year, as long as economic growth remains “broadly” in line with the Fed’s expectations.
“We have given some fairly specific qualitative guidance about what we’re looking for,” he said Thursday. Specifically, the Fed wants the unemployment rate to decline from the current rate of 7.6 percent to a rate “in the general vicinity of 7 percent with inflation moving back toward this 2 percent objective.”
The Fed, however, has not included that guidance in its policy statements. And an account of the most recent meeting of the Federal Open Market Committee noted that “about half” of the 19 officials who participated said before the meeting that they expected to end asset purchases by the end of this year.
Senator Charles E. Schumer, Democrat of New York, asked Mr. Bernanke about the apparent disagreement over the question of how much longer the Fed should continue its current bond-buying campaign.
“There seems to be some disparity between the other members and you, and if you’re not there come next year, there’s a worry there,” Mr. Schumer said. “Do they think unemployment will be 7 percent this year, or do they have different assessments about the relative cost and benefit of” quantitative easing?
Mr. Bernanke responded that officials had various reasons for their views. Some regard asset purchases as ineffective, while others may be more optimistic about the economy. But he added that the committee had “a very careful discussion” that led to his public statement about the probable timetable for tapering.
“The general scenario which I described in my press conference is broadly supported by people on the committee and including both voters and nonvoters,” he said.
Article source: http://www.nytimes.com/2013/07/19/business/fed-chief-again-declines-to-set-timetable-for-stimulus-end.html?partner=rss&emc=rss
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