US Federal Reserve chairman Ben Bernanke said Wednesday that the Fed was prepared to renew its stimulus efforts if the economy remains feeble.
Two weeks after the end of its $600 billion bond-purchases program, or quantitative easing dubbed QE2, Bernanke told members of Congress that a new such effort could be launched, and other measures be taken, if economic weakness persists through the second half of the year.
"The possibility remains that the recent economic weakness may prove more persistent than expected and that deflationary risks might reemerge, implying the need for additional policy support," Bernanke said.
He said the Fed could follow in the footsteps of QE2 and increase its purchases of US securities, pushing more liquidity into the economy.
It could also cut a key interest rate it pays to banks on their reserves -- which could help push down commercial lending rates, he said.
Meanwhile the Fed will take its time unwinding the QE2 program, he confirmed. The central bank will continue to reinvest the original $600 billion into new Treasury securities and not reel the funds in as long as economic growth remains tepid, he said.
Bernanke defended the quantitative easing program, which some economists and finance industry analysts have argued had little impact in helping the economy recover from the 2008-2009 recession.
"The program had the intended effects of reducing the risk of deflation and shoring up economic activity," he said.
"This was a significant achievement, as we know from the Japanese experience that protracted deflation can be quite costly."
He also said it helped boost employment, even though the jobless rate remains a high 9.2 percent.