Bernanke firm but flexible on bond purchase wind-down

Federal Reserve chairman Ben Bernanke said today that the US central bank still expected to start winding down its massive bond purchase programme later this year, leaving open at the same time the option of altering the plan in the event of a shift in the economic outlook.

Though he continued to push the timeline to wind down the bond buying that he first outlined last month, the Fed chief made it a point to stress that nothing was set in stone.

"Our asset purchases depend on economic and financial developments, but they are by no means on a preset course," he told the House of Representatives Financial Services Committee.

Under the plan he revealed on 19 June, the US central bank would likely cut its monthly bond buys later this year ending it in entirety by mid-2014, as long as the economic recovery continued on track.

Continuing with that guidance yesterday he, however, said the current $85 billion monthly pace of purchases could be tapered down "somewhat more quickly" if pace of improvement of economic conditions picked up further. It also "could be maintained for longer" in the event of darkening of labour market outlook, or if inflation did not appear to be rising toward the Fed's 2 per cent goal.

"Indeed, if needed, the (Fed's policy) committee would be prepared to employ all its tools, including an increase (in) the pace of purchases for a time, to promote a return to maximum employment in a context of price stability," Bernanke said.

According to commentators, despite an audio glitch that delayed Bernanke's latest congressional update, the Fed chief would like to hope that his message went down loud and clear.

"I emphasize that, because our asset purchases depend on economic and financial developments, they are by no means on a preset course," he said in a presentation that was delayed by 30 minutes. "On the one hand, if economic conditions were to improve faster than expected, and inflation appeared to be rising decisively back toward our objective, the pace of asset purchases could be reduced somewhat more quickly."

Bernanke's assurance that the Fed would change the bond purchases, a policy known as "quantitative easing," or QE, as economic conditions dictate was meant to address the fears of investors. Financial markets tanked in May following Bernanke's guidance and confusion prevailed over when the bank would start scaling back its bond purchases.

Stocks staged a recovery subsequently, and after Bernanke and other Fed officials' reassuring speeches, are now at record highs, thanks to their message of continuing support by the central bank through low interest rates.