Bernanke Says Fed Has ‘Tools’ Necessary to Reduce Easing

Federal Reserve Chairman Ben S. Bernanke said the central bank has the “tools” necessary to scale back record stimulus and avert a rise in inflation expectations, in congressional testimony that was identical to his remarks yesterday to the Senate Banking Committee.

The Federal Open Market Committee “remains confident that it has the tools necessary to tighten monetary policy when the time comes to do so,” Bernanke said today in the text of comments to the House Financial Services Committee in Washington.

Bernanke and his FOMC colleagues are debating whether to curtail $85 billion in monthly bond-buying amid concern the Fed’s record $3.1 trillion balance sheet may encourage excessive risk-taking by investors and complicate the Fed’s exit from easing. Several participants at the Jan. 29-30 meeting said the Fed should be prepared to vary the pace of purchases as the economic outlook changes, according to minutes released last week.

“Highly accommodative monetary policy has several potential costs and risks, which the committee is monitoring closely,” Bernanke said in his prepared remarks. “Inflation is currently subdued, and inflation expectations appear well anchored; neither the FOMC nor private forecasters are projecting the development of significant inflation pressures.”

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