Bernanke backs Yellen: Taper depends on economy
Federal Reserve Chairman Ben Bernanke said on Tuesday the Fed would maintain its ultra-easy U.S. monetary policy for as long as needed and only begin to taper bond buying once it is assured that improvements in the labor market would continue.
He noted that the fed funds rate can remain near zero 'well after' the unemployment rate hits 6.5 percent and that unemployment targets are thresholds, not triggers. The U.S. unemployment rate is currently at 7.3 percent.
In a speech to the National Economists Club that echoed dovish comments by his nominated successor, Janet Yellen, Bernanke also said that while the economy had made significant progress, it was still far from where officials wanted it to be.
"The FOMC remains committed to maintaining highly accommodative policies for as long as they are needed,'' he said in prepared remarks, referring to the policy-setting Federal Open Market Committee.
(Read more: Is the Fed really driving up stock prices?)
"I agree with the sentiment, expressed by my colleague Janet Yellen at her testimony last week, that the surest path to a more normal approach to monetary policy is to do all we can today to promote a more robust recovery,'' he said.
"Asset purchases are not on a preset course," he noted, adding that the bond purchase pace will remain "contingent on the Committee's economic outlook."
Financial markets showed little immediate reaction to Bernanke's comments, with equity markets in Asia mixed, U.S. stock futures trading lower and the dollar down marginally against other major currencies.
"Bernanke offered little additional guidance on the possible timing of when the Fed might start to slow the pace of its asset purchases," Paul Ashworth, chief U.S. economist at Capital Economics, said in a note.
Talk of when the Fed may start to taper its $85 billion-a-month bond-buying program has dominated markets for months, with a decision by the central bank to keep policy unchanged in September taking investors by surprise.
The minutes from the Fed's October meeting will be released on Wednesday and are likely to be scrutinized closely for clues on the outlook.
"He did sound a little dovish," Blackhorse Asset Management Chief Economist Richard Duncan told CNBC Asia's "Squawk Box," talking about Bernanke's speech.
"He started off talking about transparency and communication and that's fine, but what moves the market is liquidity not communication and right now the Fed is creating so much excess liquidity in the economy that it is pushing up asset prices," he added.
A stellar rally on Wall Street shares, underpinned by the Fed's monetary stimulus, has fuelled talk of a bubble in stock markets that could pose risks of their own to the U.S. economic outlook.
(Read more: No market bubble, but some froth: Traders)
"There was no shock, no awe, no surprises from Bernanke's speech," Bob Iaccino, chief market strategist at TopstepTrader, told CNBC. "Given that the aim of this Fed was to re-flate, inflate asset prices, they've done well."
When to taper?
In his speech, Bernanke said the Fed would continue to watch labor market conditions closely.
"The FOMC still expects that labor market conditions will continue to improve and that inflation will move toward the 2 percent objective over the medium term. If these views are supported by incoming information, the FOMC will likely begin to moderate the pace of purchases," he said.
The FOMC next meets on December 17 and 18 and most economists expect the central bank to start tapering its monetary stimulus in either January or March.
"It is possible that we get a March taper. But that's because if we don't get a March taper there will be so much excess liquidity that the stock market will blow up into an enormous bubble," Duncan said.
—Reuters contributed to this article.