Federal Reserve Chairman Ben Bernanke still expects the central bank to start taking its foot off its ultra-easy bond-buying program later this year, but cautioned that the option of changing such a plan is still plausible if the economy shifts.

Bernanke pointed out during a House Committee on Financial Services hearing Wednesday that the Fed’s asset purchases are not on a "preset course" and could reduce or expand quickly depending on how well the markets continue to recover.

"If the outlook for employment were to become relatively less favorable, if inflation did not appear to be moving back toward 2%, or if financial conditions — which have tightened recently — were judged to be insufficiently accommodative to allow us to attain our mandated objectives, the current pace of purchases could be maintained for longer," the chairman said. 

He added, "Indeed, if needed, the committee would be prepared to employ all of its tools, including an increase in the pace of purchases for a time, to promote a return to maximum employment in a context of price stability."

While the wind down of the central bank’s quantitative easing program may be in the market’s rearview mirror some time this year, Bernanke made it clear that officials will keep rates near zero at least until the unemployment rate falls to 6.5% — many Federal Open Market Committee members do not expect rates to rise until sometime in 2015. 

All signs point to an improving economy at a moderate pace due to a stronger housing sector, which continues to help conditions in the labor market.

"Historically there are two areas of the economy that have been impacted and that is housing and autos, which are leading our recovery now," the chairman noted.

He added, "The housing sector is an important component of the recovery and housing prices going up is very beneficial. The improving market allows households to use their consumer spending on other things."

Nonetheless, various members of the subcommittee pointed out that the market is negatively reacting to the steady increase in rates, specifically noting that the 30-year, fixed-rate mortgage is above 4%.

While Bernanke firmly believes mortgage rates need to be monitored in the near future, he is not worried about the slight increases given that such levels are still historically low compared to financial crisis levels.

Actually, the sequestration and higher taxes are the two areas of elevated concern for Bernanke who stated that both might still turn out to put a longer drag on economic growth.

"More generally, with the recovery still proceeding at only a moderate pace, the economy remains vulnerable to unanticipated shocks, including the possibility that global economic growth may be slower than currently anticipated," Bernanke explained.

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