Despite expected improvement, downside risks to the economy remain, including further housing or labor market deterioration or tightening credit conditions, Federal Reserve Board chairman Ben Bernanke testified before Congress yesterday.

The Federal Open Market Committee will “will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks,” Bernanke told the Senate Committee on Banking, Housing, and Urban Affairs.

“A critical task for the Federal Reserve over the course of this year will be to assess whether the stance of monetary policy is properly calibrated to foster our mandated objectives of maximum employment and price stability and, in particular, whether the policy actions taken thus far are having their intended effects,” Bernanke said, according to prepared text of his remarks released by the Fed.

“Monetary policy works with a lag. Therefore, our policy stance must be determined in light of the medium-term forecast for real activity and inflation, as well as the risks to that forecast,” he said. “At present, my baseline outlook involves a period of sluggish growth, followed by a somewhat stronger pace of growth starting/ later this year as the effects of monetary and fiscal stimulus begin to be felt. At the same time, overall consumer price inflation should moderate from its recent rates, and the public’s longer-term inflation expectations should remain reasonably well anchored.”

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.