WASHINGTON: Chairman Ben Bernanke said Wednesday that the Federal Reserve’s timetable for reducing its bond purchases is not on a “preset course” and policymakers could increase or decrease the amount based on how the economy performs.
Bernanke told lawmakers that the job market has made some progress since the Fed began buying $85 billion a month in bonds in September, as part of his mid-year economic report to Congress. And he repeated his belief that the Fed could slow that pace later this year if the economy strengthens.
But Bernanke cautioned that the Fed wants to see substantial progress in the job market before scaling back the bond purchases. If conditions worsen, the Fed could maintain its current pace or even increase it. The bond purchases are intended to keep long-term interest rates low and encourage more borrowing and spending.
Separate from Bernanke’s testimony, an anecdotal report on the recent performance of the economy called the “beige book” offered these observations about Northeast Ohio:
The report said Ohio and parts of neighboring states saw moderate growth the last six weeks.
Hiring increased among manufacturing and residential construction businesses in the Cleveland Fed’s Fourth District, which includes all of Ohio. Most job vacancies were in health care and manufacturing, according to staffing firms.
• Manufacturing orders and production were steady or higher.
• Residential construction since the beginning of the year has slowed while remaining above levels from a year ago. Non-residential builders said inquiries increased and backlogs grew. Single family home sales in June were down from the last beige book report but higher than a year ago.
• Retail sales were lackluster during May. Sales of new vehicles were higher than a year ago. Used vehicle sales also rose.
• Ohio continued to issue shale gas drilling permits at a robust pace. Conventional and unconventional gas wells output was stable while oil production picked up slightly. Drilling has declined since the start of the year.
• Freight transport volume exceeded projections although the rate of growth slowed since the last report. The trucking industry still has a shortage of drivers and skilled mechanics.
• Demand for home and commercial property loans increased since the last report, banks said. Consumer credit demand rose slightly.
In his appearance before Congress, Bernanke noted that other factors could influence the Fed’s interest rate policies. Economic growth could be restrained further by a weaker global economy or federal spending cuts and tax increases. Inflation could remain well below the Fed’s 2 percent target. And the unemployment rate could drop because people are leaving the workforce — not because they are getting jobs.
Bernanke’s remarks were his latest attempt to calm markets, which have gyrated wildly since the Fed’s June meeting.
The job market has improved since the Fed’s bond buying began. Employers have created an average of 202,000 jobs a month this year, up from 180,000 in the previous six months.
Still, unemployment remains elevated at 7.6 percent. And economic growth has been modest the past three quarters.
Beacon Journal business writer Jim Mackinnon contributed to this report.