Bernanke warns of need for monetary tightening

The Federal Reserve "will not be able to wait until things are completely back to normal" before it starts to tighten monetary policy, its chairman, Ben Bernanke, warned US politicians, but he promised that interest rates would remain low for a long time.

Mr Bernanke was questioned yesterday on the Fed's plans to reverse the hundreds of billions of dollars of quantitative easing and super-low interest rates it has been using to prop up the economy. While he expressed concern about unemployment, he said that monetary tightening will have to begin before the economy returns to full employment: "As the expansion matures, the Federal Reserve will need to begin to tighten monetary conditions to prevent the development of inflationary pressures."

The Fed will tighten policy first by raising the rates it pays on bank deposits held at the central bank, and eventually by selling some of the mortgage-backed securities that it has been buying to boost the housing market.

The latest US jobs figures yesterday showed 442,000 people signing on last week, down 14,000 on the week before.