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Bernanke has said that he thought the unemployment rate would be about 7 percent when the bond buying program ends. "What Bernanke did today is try to contain the damage from what was a communication misstep in June and I think he succeeded," said Brian Bethune, an economics professor at Gordon College in Wenham, Mass. "The Fed in June saw that even the smallest hint of a change in Fed policy can turn out to be extremely powerful in terms of its impact on financial markets."
Bethune predicts the Fed will hold off on any policy change in September because there will not be enough data to show that economic growth has strengthened. Bethune said the earliest the Fed could announce a reduction in the bond purchases would likely be December.
Still, other economists believe the Fed is still on track to slow them in September.
Paul Dales, senior U.S. economist for Capital Economics, said Bernanke's remarks did not alter that view. Of course, Dales said Bernanke made it clear that any change would depend heavily on the economy's health.
"We don't think this forward guidance could be much clearer," Dales said.
Bernanke spent a good part of the three-hour hearing addressing other topics beyond the Fed's low interest rate policies:
He reminded lawmakers that their fiscal policies are having an adverse effect on the economy. Higher taxes and deep federal spending cuts could reduce growth by 1.5 percentage points this year. Bernanke said the impact of those policies should begin to wear off in the second half of this year, but there was a risk that the damage could linger.
He warned that a failure by Congress to approve an increase in federal government's $16.7 trillion borrowing limit sometime this fall could be harmful to the economy and unsettling to financial markets.
He said regulators have more work ahead to put the 2010 financial overhaul law into effect. Additional rules must be written to reduce the risk of financial firms collapsing and bringing down the financial system. Thanks to the overhaul rules that have been put in place, that possibility is less likely, but the threat "is not gone," Bernanke said.
[Associated
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