"Highly accommodative monetary policy for the foreseeable future is what's needed in the U.S. economy,"
- Ben S. Bernanke, Fed Chairman
Federal Reserve Chairman Ben Bernanke said Wednesday the central bank will likely maintain accommodation for the foreseeable future, even as about half of 19 policy makers insisted on halting $85 billion bond purchases by the year end, while others wanted to see a stable improvement in the labour market before any policy retreat. The debate highlighted Bernanke's challenge in confirming that, even after starting to scale back monthly bond buying, central bankers plan to keep unprecedented stimulus with a record-high balance sheet and near-zero target interest rate. Emphasizing that the unemployment rate is still too high, while inflation too low, Bernanke said that both aspects of the mandate suggest that the monetary policy should be more accommodative.
The Fed's June meeting was held before the release government's data on the U.S. labour market, which showed an unexpected strength in June. The economy added 195,000 jobs last month and the unemployment rate stayed at 7.6%. However, Bernanke reiterated that the Fed will not consider increasing short-term rates until the jobless rate reaches 6.5%, as long as long-term inflation expectations do not exceed 2.5%.
© Dukascopy Bank SA