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Fed to maintain soft stance

Ben Bernanke in Philadelphia on Friday. (AFP)

Philadelphia, Jan. 4 (Reuters): The US Federal Reserve is no less committed to a highly accommodative policy now that it has trimmed its bond-buying stimulus, Ben Bernanke said on Friday in what could be his last speech as Fed chairman.

Bernanke, who steps down as head of the US central bank at month’s end, gave an upbeat assessment of the US economy in the coming quarters. But he tempered the positive signs in the housing sector, financial markets and fiscal policies by repeating that the overall recovery “clearly remains incomplete” in the US.

In what came as a surprise to some, the Fed decided last month to cut its asset-purchase programme, known as quantitative easing, or QE, by $10 billion to $75 billion per month. It cited a stronger job market and economic growth in its landmark decision, which amounted to the beginning of the end of the largest monetary policy experiment ever.

But that decision “did not indicate any diminution of (the Fed’s) commitment to maintain a highly accommodative monetary policy for as long as needed”, Bernanke said at an American Economic Association forum in Philadelphia.

“Rather, it reflected the progress we have made towards our goal of substantial improvement in the labour market outlook that we set out when we began the current purchase programme in September 2012,” he said.

US Treasuries prices were modestly lower following Bernanke’s remarks, while US stock prices were higher in light trading.

To recover from the deep 2007-2009 recession, the Fed has held interest rates near zero since late 2008. It also has quadrupled the size of its balance sheet to around $4 trillion through three rounds of massive bond purchases aimed at holding down longer-term borrowing costs.

The Fed’s extraordinary money-printing has helped drive stocks to record highs and sparked sharp gyrations in foreign currencies, including a drop in emerging markets last year as investors anticipated an end to the easing.

 
 
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