By Steven K. Beckner

WASHINGTON (MNI) – Federal Reserve Chairman Ben Bernanke defended
what he called the “substantive step” the Fed’s policymaking Federal
Open Market Committee took Wednesday in prolonging its “maturity
extension program,” while asserting that the FOMC is prepared to go much
further.

Bernanke, speaking to reporters following the FOMC meeting, said
the FOMC is prepared to do another round of large-scale asset purchases
or “quantitative easing” if economic growth and employment prove
disappointing.

The FOMC voted to extend its so-called “Operation Twist,” which had
been set to expire at the end of June until the end of the year and to
buy $267 billion of longer term securities, financed by sales of
securities with remaining maturities of three years or less.

Bernanke was asked to explain why the FOMC had not done something
more aggressive given recent economic softness and elevated
unemployment. He denied that it was too “modest” as one reporter
suggested.

“I think it is substantive and will provide some additional
support,” he said of the prolonged Operation Twist.

In taking extending Twist, the FOMC said it “is prepared to take
further action as appropriate to promote a stronger economic recovery
and sustained improvement in labor market conditions in a context of
price stability.”

Bernanke echoed and elaborated on that statement several times
during the course of his news conference.

“We are prepared to take further steps if necessary to promote
sustainable growth and recovery in the labor market,” he said at one
point. “We are prepared to do what is necessary. We are prepared to
provide support for the economy.”

Later, Bernanke said the FOMC “still have considerable scope to do
more, and we are prepared to do more.”

In explaining what might justify QE3, he outlined the same kind of
conditions as he did in his last news conference on April 25.

“We will continue to monitor the economy and see how things
evolve,” he said. “Again we are looking primarily at the labor market in
this respect. If we’re not seeing sustained improvement in the labor
market, it would require additional action.”

Bernanke also made clear he and his FOMC colleagues will be keeping
a close eye on the European debt crisis and how that might damage U.S.
economic and financial conditions.

Meanwhile, he noted that inflation has receded, as he had
predicted, suggesting that inflation pressures will not be an impediment
to further quantitative easing.

He said the FOMC will have to weigh “the costs and risks” of
further action as well as the benefits, but repeatedly said the Fed is
“prepared to do more.”

** MNI Washington Bureau: 202-371-2121 **

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