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article imageBen Bernanke will continue $85 billion bond buying in US for now

By Ken Hanly     Jul 17, 2013 in Business
Washington - Ben Bernanke said that the Fed might start to reduce bond purchases some time later this year. However, he also made it clear that any decision to do so would depend upon the state of the US economy.
Chair of the US Federal Reserve System, Ben Bernanke, reported today before the US House financial services committee. Bernanke said:"With unemployment still high and declining only gradually, and with inflation running below the Committee's longer-run objective, a highly accommodative monetary policy will remain appropriate for the foreseeable future."
At present the Fed purchases $85 billion in bonds each month in a bid to stimulate the economy. Bernanke said that he would begin to reduce bond purchases only if the labor market strengthened and inflation began moving up towards two per cent. He made it clear that there was no "preset course". However, he did suggest that if tapering did begin later this year it could continue into 2014 and end purchases altogether about the middle of the year.
Bernanke noted that the Fed could continue accomodative policies even should it reduce bond purchases:"We are relying on near-zero short-term interest rates, together with our forward guidance that rates will continue to be exceptionally low—our second tool—to help maintain a high degree of monetary accommodation for an extended period after asset purchases end, even as the economic recovery strengthens and unemployment declines toward more-normal levels."
After its June meeting the Fed forecast unemployment should drop to 7.2 to 7.3 per cent by the end of this year and to between 6.5 to 6.8 per cent by the end of next year. The growth in GDP is also expected to rise from between 2.3 to 2.6 per cent in 2013 to 3.0 to 3.5 per cent next year.
Bernanke had to be extremely cautious in his announcement, since in May markets plunged after Bernanke told Congress that the Fed might reduce its purchases of bonds within a relatively short time, as early as September. This time there were no surprises. US markets rose slightly and most world markets were also mildly positive just before the close today (July 17).
An analyst at Commonwealth Foreign Exchange, Omer Esiner, said:“There is something in these comments for everybody. Bernanke has done a good job of leaving himself plenty of maneuver room in terms of policy.”
The new head of the Bank of Canada, Stephen Poloz, also stayed the course. The Bank announced that the interest rate will remain at its present one per cent. In a statement the Bank said: "Growth is expected to be choppy in the near term, owing to unusual temporary factors, although the overall outlook is little changed from the bank's projection in … April."
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