Ben Bernanke said yesterday that the U.S. economy is gradually improving and emphasized that the Federal Reserve is not locked into any timetable for scaling back policies aimed at jolting growth.
The Fed chairman told Congress there is no "preset course" and that any decision to reduce its $85 billion-a-month bond-buying program will depend on how the economy performs. And he said that the Fed could maintain or increase those purchases if it sensed the economy was weakening.
The bond purchases have kept long-term interest rates low and encouraged more borrowing and spending.
The U.S. economy is getting a lift from the recovering housing market and steady hiring, Bernanke said. But it is being held back by domestic spending cuts and slower growth abroad. The Fed is also closely monitoring inflation, which has fallen below the Fed's 2 percent target.
"Because our asset purchases depend on economic and financial developments, they are by no means on a preset course," he told the House Financial Services Committee during the first of two days of testimony this week on the Fed's semiannual report. He will appear Thursday before the Senate Banking Committee.
Bernanke's remarks were his latest attempt to calm markets, which have gyrated wildly since the Fed's June meeting.
Last month, stocks plunged after Bernanke said the Fed could slow the bond purchases later this year and end them next year if the economy strengthens. Since then, Bernanke and other Fed members have stressed that any change in policy depends on improvement in the job market and economy, not a target date.
Wednesday, Bernanke stuck closely to that more dovish tone. He noted that the job market has made some progress but the Fed wants to see "substantial progress" before reducing the bond buys.
"Despite these gains, the job situation is far from satisfactory," he said.
Bernanke also said the Fed plans to keep its benchmark short-term interest rate near zero as long as unemployment is above 6.5 percent. And the Fed could hold the rate down even after it falls below 6.5 percent, he said, particularly if unemployment declines because more people are leaving the workforce.