Federal Reserve chairman Ben Bernanke said today that 'accommodative' monetary policies are still needed to sustain an economic recovery but that the central bank can exit from its stimulus 'at the appropriate time'.
Bernanke, in remarks prepared for a congressional hearing, also said the Fed was considering a new benchmark target based on the rate paid on commercial bank deposits at the Fed, which might better reflect lending conditions.
The comments were released by the Fed even though the hearing by the House Financial Services Committee was canceled due to winter storms pounding Washington.
'The economy continues to require the support of accommodative monetary policies,' Bernanke said.
'However, we have been working to ensure that we have the tools to reverse, at the appropriate time, the currently very high degree of monetary stimulus. We have full confidence that, when the time comes, we will be ready to do so,' he added.
The hearing was called by congressional leaders eager for a detailed explanation to date on the exit strategy from Bernanke, who last month won a tough confirmation battle for a second four-year term.
Bernanke's comments offered no specific timeline for the Fed to move away from its massive stimulus that has included a cut in the federal funds rate to a range of 0-0.25% and an array of programmes to pump more than $1 trillion into the economy.
He repeated that this effort is likely to remain in place 'for an extended period,' the same phrase used by the Federal Open Market Committee.
'In due course, however, as the expansion matures the Federal Reserve will need to begin to tighten monetary conditions to prevent the development of inflationary pressures,' he said.
'The Federal Reserve has a number of tools that will enable it to firm the stance of policy at the appropriate time,' he added.
Bernanke reaffirmed the Fed's intent to conclude its programme of major asset purchases - or quantitative easing - to pump money into the financial system - by the end of March.
He said this would entail the purchase of $300 billion of Treasury securities and $1.25 trillion of government agency mortgage-backed securities. But he said the Fed would probably hold these assets until market conditions improve.
