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Investors to scrutinize Bernanke testimony

Federal Reserve chairman Ben Bernanke is expected to

Federal Reserve chairman Ben Bernanke is expected to be asked about the economy at his testimony before Congress. (June 19, 2013) Credit: Getty Images

Ben Bernanke's sway over financial markets has been on full display in recent weeks. When the Federal Reserve chairman speaks Wednesday to Congress, investors will once again parse each word for any subtle shift in the Fed's stance on interest rates.

Bernanke has sent financial markets plunging and surging the past two months, depending on whether he was seen as loosening or affirming the Fed's commitment to ultralow interest rates. Low rates have fueled home sales, encouraged borrowing and spending, lifted stock prices and helped support economic growth.

Since the financial crisis erupted in 2008, the Fed has kept its benchmark short-term interest rate near zero. And since late last year, it's been buying $85 billion a month in mortgage and long-term Treasury bonds to try to reduce long-term rates and induce people and businesses to borrow and spend.

The chairman's two days of testimony begin Wednesday before the House Financial Services Committee. Bernanke is expected to be pressed about the state of the economy and his future at the Fed after his second four-year term as chairman ends in January. But financial markets will be most glued to Bernanke's comments about the Fed's likely timetable for slowing its bond buying.

His recent public remarks have baffled investors.

After the Fed's last meeting June 18-19, Bernanke sketched a rough timetable for the Fed's bond purchases: He said that if the Fed's expectations for moderate economic growth and a gradually stronger job market prove accurate, it could start scaling back its bond buying later this year and end it around mid-2014.

Bernanke's words sent the Dow Jones industrial average down 560 points in two days. Investors feared Bernanke's comments meant the Fed was ready to let rates rise sooner and faster than they'd expected.

Since then, the chairman has stressed that the Fed won't pull back on its stimulus unless the evidence is clear that the economy and the job market were improving.

And Bernanke has signaled that even after the Fed starts to slow its monthly bond purchases, its overall policies will keep rates low.

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