In his testimony, Bernanke is saying he is ready to deal with anything that comes the Fed’s way. If the economy improves, they will continue to plan for withdrawing accommodation. If the economy turns lower again, “we remain prepared to take further policy actions as needed.” Considering everything they’ve done already, it will be alarming when the time comes that they feel they need to do more. With respect to the economy, he acknowledges how uncertain the outlook is although he believes the expansion is “proceeding at a moderate pace.” He highlights the risk in Europe and its impact on growth and a US banking system that is still dealing with bad loans and weak credit demand. He, as expected, is very sanguine on the inflation outlook for the next several years. He also outlines what steps, when the time comes, of reducing the size of their balance sheets.
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