WASHINGTON - Federal Reserve Chair Ben Bernanke's monetary policy testimony Wednesday fails to illuminate further the Federal Open Market Committee's reaction function, in part because he reviews past decisions and says about the future only that "it will be especially important to review incoming information to assess the underlying pace of economic recovery."

Bernanke spends most of the short eight-page written testimony explaining again the decisions released in January. He recognizes that recovery continues and mentions recent positive labor market developments, but then warns that "continued improvement in the job market is likely to require stronger growth."

Unemployment remains elevated, Bernanke said, as he throws some cold water on future prospects. He said the decline in unemployment was more rapid than expected given below-trend growth.

This question has been raised by other analysts recently: how can payrolls surge when growth remains in the middling 2% area?

Bernanke reiterated that the FOMC's best guess is that 2012 growth will look like the second half of 2011 (+2.25%), and that appears to be the key reason to expect more accommodation from the Fed.

Bernanke noted constructive actions in Europe but said challenges remain.

There is virtually nothing new on monetary policy. Bernanke repeated the FOMC language about being "prepared to adjust" SOMA holdings.

Bernanke concluded that a 'highly accommodative' stance is consistent with Fed goals as unemployment is elevated and the inflation outlook subdued.

The February Monetary Policy Report contained a special section discussing recently heightened forecasting uncertainties. These are especially noted for growth estimates.

Market News International is a real-time global news service for fixed-income and foreign exchange market professionals. See www.marketnews.com.

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