"A premature tightening of monetary policy could lead interest rates to rise temporarily..."
- Federal Reserve Board Chairman Ben Bernanke
As the world's largest economy remains hampered by high unemployment, tax hikes and recent budget cuts, tightening policy too soon may pose certain risks to the economy, the Federal Reserve Board Chairman Ben Bernanke warned Wednesday. During his Testimony he noted that the U.S economy is growing moderately during this year, while the closely-watched unemployment rate has already fallen to a four-year low of 7.5%. Still, the number of people without a job remains well above levels consistent with healthy economies. Moreover, higher taxes and deep federal spending cuts are expected to weigh on the economic growth. In this case, reducing the Fed's QE to keep borrowing rates low would carry a substantial risk of slowing the economic recovery.
"A premature tightening of monetary policy could lead interest rates to rise temporarily but would also carry a substantial risk of slowing or ending the economic recovery and causing inflation to fall further," Bernanke said on Wednesday in testimony. Monetary policy is providing "significant benefits," he said.
Also Wednesday, the data showed that purchases of existing houses rose 0.6% to an annual rate of 4.97 million in April, the most since November 2009. Analysts, however expected a stronger reading of 4.99 million units.
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