WASHINGTON — Federal Reserve Board chairman Ben S. Bernanke held out the possibility that the Fed might do more to boost a sluggish economy Wednesday, even while talking about the eventual need to remove monetary stimulus and return to a more normal central-bank balance sheet.

Bernanke, delivering the Fed’s semiannual Monetary Policy Report to Congress before the Senate Banking Committee, said the Federal Open Market Committee expects “moderate” growth, a “gradual” reduction in unemployment, and “subdued” inflation.

But the Fed chief described the economic outlook as “unusually uncertain” as he presented a report that contained downward forecasts by Fed governors and Federal Reserve bank presidents.

He continued to cast a wary eye on weak job markets and credit-market constraints, reiterating the FOMC’s concern that financial conditions have become “less supportive” of growth in the wake of the European debt crisis.

The Fed chairman said the central bank will need to tighten policy “at some point,” and went on to outline the way it is apt to proceed.

Against a “moderate” and “uncertain” economic backdrop, he reiterated the FOMC’s judgment that the near-zero federal funds rate will likely need to stay “exceptionally low” for an extended period. Bernanke then went a step further, noting that the Fed remains prepared to take further policy actions as needed.

Bernanke said the FOMC has been “discussing alternatives” for getting the Fed’s bloated balance sheet back to a normal size and composition, but made it clear that this is not something on the near-term horizon.

— Market News International

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