The US Federal Reserve must continue to prop up the economy for an extended period, Fed Chairman Ben Bernanke said yesterday.
However, he added that the stimulus cannot go on forever due to the inevitable negative effect it will have on inflation.
The US central bank has cut interest rates to near 0% and pumped hundreds of billions of dollars into the financial system to counter the worst financial crisis since the 1930s.
At a Fed conference, where he discussed the central bank's ballooning balance sheet, Bernanke made clear that policymakers were thinking how to terminate support as recovery sets in.
'Accommodative policies will likely be warranted for an extended period,' Bernanke told participants at the conference held in the Fed's headquarters.
'At some point, however, as economic recovery takes hold, we will need to tighten monetary policy to prevent the emergence of an inflation problem down the road.'
Bernanke sent a signal the Fed is gradually but steadily moving toward an exit from its supportive policies, even while evidence of the recovery has been mixed.
A report last week showing that US employers shed more jobs than expected in September dented confidence in the recovery. But data released yesterday showed gains in retail sales and a nine-month low in unemployment claims reinvigorated optimism.
