In his speech, Bernanke said current forecasts project long-term interest rates will rise only gradually in the next several years. Rates for 10-year Treasury bonds might rise by between 2 and 3 percentage points between now and 2017, he said. The 10-year Treasury is currently trading around 1.9 percent.
But Bernanke also referenced a time in the past when the Fed began tightening credit and rates rose more rapidly. In 1994, the yield on the 10-year Treasury rose more than 2 percentage points in just 12 months, he noted.
He said this increase reflected an unexpected acceleration in the pace of economic growth and signs of building inflation pressures.
Bernanke said such a big increase in one year was at the "upper end" of what private forecasters are predicting could happen when the Fed begins tightening interest rates this time. And he said the Fed's ability to communicate its future moves to markets have improved considerably since 1994.
By providing greater clarity about the future course of interest rates, Bernanke said the Fed's improved communication efforts should reduce the risk that market misperceptions about the Fed's intention "would lead to unnecessary interest rate volatility."
The Fed said at its January meeting that it will not halt its bond buying until it has seen a substantial improvement in the labor market.
In December, it set a goal of keeping its key short-term interest rate near zero until unemployment has fallen below 6.5 percent. Unemployment in January stood at 7.9 percent and many economists believe it will not drop below 6.5 percent until late 2015 at the earliest.
The Fed's low-interest-rate policies were approved on an 11-1 vote at the January meeting, although minutes of those discussions showed that a minority of Fed officials expressed concerns about the current level of the bond purchase program.
However, Bernanke's appearances before Congress this week and in his Friday speech sent a strong signal that he still believes the low-rate policies are needed to provide support for an economy still burdened by high unemployment.
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