Fed to remove policy accommodation to avoid inflation ahead

Ben Bernanke, Chairman, US Federal Reserve, said going forward the Fed will have to remove policy accommodation to avoid inflation ahead. "For the time being, we still need to maintain a strong supportive position to help begin this economic recovery. At some point, we are going to need to begin to withdraw the policy accommodation, so that we can avoid any inflation down the road."

Commenting on the sudden rise in treasury yields, he said, "In recent weeks, yields on longer term securities and fixed rate mortgages have increased. These increases continue to reflect concerns about the large Fed deficits. The other clauses included greater optimism about the economy outlook, a reversal of flight to quality flows, and technical factors relating to hedging of mortgage holdings."

To stem the rising deficit, Bernanke said, "Even as we take steps to address the recession and threats to financial stability, maintaining the confidence of the financial markets requires that we as a nation begin planning now for the restoration of fiscal balance."

Also see:

Fed's easy money policy led to US crisis: Steve Forbes

Economy on recovery track despite slow pace: Bernanke