Bernanke told Congress the Fed was monitoring “significant risks” to the US recovery from Europe's debt and banking crisis closely.
But for financial markets hungry for clues about the prospect for a third round of Fed bond buys, Bernanke's testimony disappointed. Many economists at prominent banks have been expecting the Fed to take some new policy steps at its June 19-20 meeting.
“The Federal Reserve remains prepared to take action as needed to protect the US economy in the event that financial stresses escalate,” Bernanke told the Joint Economic Committee.
Stocks pared gains on Bernanke's remarks, but remained in positive territory following a steep rally on Wednesday.
Weak US employment data last week and an escalation in the euro zone's crisis has raised speculation the Fed will again have to step in to support a fragile recovery.
Yet Bernanke's tone was far from crisis mode. Indeed, he sounded somewhat sanguine about the outlook. “Despite economic difficulties in Europe, the demand for US exports has held up well,” he said.
His comments stood in sharp contrast to those of Fed Vice Chair Janet Yellen, who late on Wednesday made the case for further monetary stimulus to insure against the risk of a downturn.
Bernanke made no such suggestions, but he did tell legislators tighter US fiscal policies set to kick in early next year barring congressional action “would, if allowed to occur, pose a significant threat to the recovery.”
Fabian Eliasson, vice president of currency sales at Mizuho Corporate Bank in New York, said Bernanke stopped far short of indicating a third round of quantitative easing was a done deal.
“I don't think he is definitely saying that QE3 is on the way. He's saying what he has said before, reassuring people that they will act if things deteriorate further,” said Eliasson.
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