The chairman of the US Federal Reserve, Ben Bernanke, has emphasised that the central bank remains committed to bolstering the economy, insisting that any easing in the Fed's stimulus campaign will happen only because it is achieving its goals, not because it has lowered its sights.
He said he still expected to reach that point in the coming months but, in what might have been his final appearance before the House Financial Services Committee, he cautioned that Congress itself posed the greatest risk to growth.
"The risks remain that tight federal fiscal policy will restrain economic growth over the next few quarters by more than we expect, or that the debate concerning other fiscal policy issues, such as the status of the debt ceiling, will evolve in a way that could hamper the recovery," Dr Bernanke said.
The sluggish economy has been a constant background for Dr Bernanke's biannual testimony. Unemployment in the US, at 7.6 per cent, remains stubbornly above the Fed's goals. Inflation is at its lowest pace on record.
Growth continues at a "modest to moderate pace", the Fed said on Wednesday in its monthly Beige Book survey of economic conditions, released separately from the chairman's testimony.
Dr Bernanke's message was that the Fed would cut back on its monthly asset purchases - $US85 billion of mortgage-backed securities and Treasury securities - only if conditions were improving. If unemployment stayed high and growth did not improve, the Fed would keep buying bonds. If inflation stayed low, the Fed would keep buying bonds. If longer-term interest rates went up, the Fed would keep buying bonds.
Dr Bernanke revived a talking point from earlier this year, insisting that the Fed was willing to buy more than $US85 billion a month.
"Because our asset purchases depend on economic and financial developments, they are by no means on a preset course," he said.
But while he said the Fed would keep its options open, it would like to start reducing its asset purchases this year and then end them as soon as possible. If the economy needed more stimulus, the Fed would prefer to extend its policy of holding short-term interest rates near zero. Dr Bernanke, who calls this shift "a change in the mix of tools", did not explain the rationale and was not asked to do so.
The Fed's course will not be determined by Dr Bernanke for much longer. He is widely expected to step down as chairman at the end of his second term in January. Members of both parties took the opportunity to praise him, although Republicans generally added that they opposed the Fed's recent efforts.
The yield on the benchmark 10-year Treasury bond sank slightly after Dr Bernanke's testimony, to below 2.5 per cent, sharemarkets posted modest gains.
Analysts say the strongest new signal he has delivered in recent weeks concerns the sluggish pace of inflation. Prices rose by just 1 per cent in the 12 months to May 31, well below the 2 per cent pace the Fed considers healthy.
Fed officials insisted for much of the year that inflation would rebound from the lowest pace on record. In recent weeks the Fed has emphasised that it will take action if there is no rebound.
In his testimony, Dr Bernanke put inflation alongside unemployment as the justification for the Fed's continuing efforts. "Our intention is to keep monetary policy highly accommodative for the foreseeable future, and the reason that's necessary is because inflation is below our target and unemployment is still quite high."
Michael Feroli, chief US economist at JPMorgan Chase, noted that the Fed chairman also cited the risk of deflation, something he had not done for several years.
"The mention of deflation risks, rather than just low inflation, is a fairly strong statement coming from a sitting central bank chief," Mr Feroli wrote.
Dr Bernanke also said the Fed would not be satisfied with a decline in the jobless rate if it was driven by people giving up the search for work rather than finding new jobs. He described this as a reason the Fed might extend its policy of low interest rates but not asset purchases.
The Fed has said that it plans to hold short-term rates near zero at least as long as the unemployment rate remains above 6.5 per cent but Dr Bernanke has said the Fed is likely to maintain the policy well beyond that threshold as long as inflation remains under control.