The US central bank’s key interest rate could stay near zero even after a stronger economy boosts employment, the Federal Reserve chief, Ben Bernanke, said, hours before the government was due to issue its latest inflation report on Wednesday.
The Bureau of Labour Statistics was scheduled to issue its benchmark estimate of inflation for October at 8:30 a.m. (1330 GMT).
The data, delayed in the aftermath of last month’s 16-day government shutdown, will follow a September estimate of the consumer price index rising 1.2 per cent in the last 12 months, well below the Fed’s goal for long-term inflation around 2 per cent.
For months, the Fed under Bernanke has been eyeing a reduction, or taper, in its monthly purchases of $85 billion in government-backed bonds.
The bank’s benchmark Federal Funds rate has been at an unprecedented near-zero since December 2008.
In the text of a speech late on Tuesday to a group of economists in Washington, Bernanke said that employment has shown “meaningful improvement” amid the Fed’s third round of bond-buying since the 2008 financial crisis began.
The latest round of quantitative easing has already pumped $1.2 trillion into the $16-trillion US economy since it was launched in September 2012.
In that time, the unemployment rate fell from 7.9 per cent to 7.3 per cent.
Stock markets have been jittery since the summer in anticipation of a reduction in bond buying, which has pushed investment out of safe—haven assets in hopes of spurring growth.
A Bloomberg News survey of 32 Wall Street economists found a median estimate that the Fed would begin tapering its purchases in March.
Bond buying could continue at a reduced pace for months or longer.
When the taper does begin “it will likely be because the economy has progressed sufficiently,” Bernanke said.
Interest rates, meanwhile, will remain near zero at least until unemployment falls to 6.5 per cent or long-term inflation expectations exceed the targeted 2 per cent, according to the Fed’s own policy statement.
“The target for the federal funds rate is likely to remain near zero for a considerable time after the asset purchases end, perhaps well after the unemployment threshold is crossed,” Bernanke said.
He emphasized that 6.5-per-cent unemployment and 2-per-cent inflation were “thresholds, not triggers.” “Even after unemployment drops below 6.5 per cent, and so long as inflation remains well behaved, the committee can be patient in seeking assurance that the labour market is sufficiently strong before considering any increase in its target for the federal funds rate.”