Federal Reserve chairman Ben Bernanke said the central bank is unlikely to pump further stimulus into the US economy unless it sees an unexpected sharp deterioration.
At a Federal Open Market Committee press conference yesterday, Bernanke said he was encouraged by signs of improvement in the labour and housing markets and expected growth to pick up gradually after remaining at moderate levels, Bloomberg reports.
He rejected calls for the Fed to allow inflation to rise about 2% to stimulate growth, saying such a move would undercut the body's credibility.
"To risk that asset for what I think would be quite tentative and perhaps doubtful gains on the real side would be unwise to do," Bernanke said.
He added it would be "very reckless" to actively seek a higher inflation rate in order to achieve a slightly faster reduction in unemployment.
Bernanke added he would keep borrowing costs low until at least 2014 and upgraded his forecast for economic growth, inflation and the unemployment rate for this year.
US inflation is close to the Fed's target of 2%, but Bernanke said it would be reckless to pursue policies that would drive up prices more quickly, while offering doubtful gains to the economy. He added central bankers were prepared to take action if conditions worsened.
Following the press conference, US markets strengthened. The S&P 500 gained 1.36% to 1,390 and the Nasdaq climbed 2.3% to 3,029. The Dow closed 0.69% higher at 13,090. US stocks had also been boosted by technology giant Apple announcing bumper gains for the first quarter of 2012 yesterday, pushing the stock to $610 per share, a near 9% gain, at yesterday's close.
Despite the forecast upgrades, Fed officials indicated concern that its economy was still vulnerable to potential shocks from the European sovereign debt crisis, and also said its jobless rate, although declining, was not doing so as quickly as desired. The impacts of fiscal tightening were also feared to dampen growth, Bernanke said.
As a result, the FOMC said growth will remain moderate over the coming quarters. The economy will expand at a 2.4% to 2.9% pace this year, up from a January projection of 2.2% to 2.7 %, central bankers said.
But growth estimates for 2013 and 2014 were lowered. Bernanke urged Congress to reduce budget deficits without endangering the expansion of the US economy.
Bernanke said the US economy was not in deflation, and added that the rise in gasoline prices had created a "temporary bulge" in inflation that is likely to pass through the system.
Fed officials also raised their projections for the inflation rate this year, as measured by the personal consumption expenditures index, to 1.9% to 2%, from 1.4%to 1.8%. Projections for the labour market were also upgraded, estimating that the unemployment rate will fall to 7.8% to 8% by year-end, compared with a January forecast of 8.2% to 8.5%.
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