Bernanke twists more into economy

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Federal Reserve Chairman Ben Bernanke explains the extension of Operation Twist, the program that involves selling short-term debt and buying long-term debt, instead of another round of quantitative easing or QE3.

SOUNDBITE: FEDERAL RESERVE CHAIRMAN BEN BERNANKE (ENGLISH) SAYING:

"We are prepared to do more. We have to get I think further information about the state of the economy, about where things are going, about what is happening in Europe. I guess I would add to that, thought that each of these nonstandard programs does have various costs and risks associated with it with respect to market functioning, with respect to financial stability, with respect to the exit process; and so I don't think they should be launched lightly. I think there should be some conviction that they are needed, but if we do come to that conviction, then we will take those additional steps."

Wall Street believes those additional steps will eventually include Q3, given the Fed's updated forecast shows a higher unemployment rate and slower economic growth through 2014.

Bernanke insists the Fed is not running out of tools, although help from Capitol Hill would be a good thing.

SOUNDBITE: FEDERAL RESERVE CHAIRMAN BEN BERNANKE (ENGLISH) SAYING:

"I wouldn't accept the proposition though that the Fed has no more ammunition. I do think our tools, while they are nonstandard, still can create more accommodative financial conditions, can still provide support for the economy, can still help us return to a more normal economic situation. That being said, again, any other support that is forthcoming, any other economic policies that are undertaken that are helpful in terms of making our economy stronger, are welcome. But I do think that monetary policy still does have some capacity to strengthen the economy by easing financial conditions."

Answering a question about Europe, he had this to say:

SOUNDBITE: FEDERAL RESERVE CHAIRMAN BEN BERNANKE (ENGLISH) SAYING:

"We think that the policy-makers in Europe have very strong incentives to get this right, and we're very hopeful they will get it right and we are in close contact with them as they work on these issues. But again it is also important for us to be prepared for any further problems that may emerge from Europe and we have been doing that. For example, we recently did our stress-tests of the large bank-holding companies to make sure they had enough capital, even in the face of a severe financial crisis or a European crisis. We have been monitoring the exposures of banks and other financial institutions to Europe, and of course monitoring the situation there very closely."

A reminder QE 3 is not off the table.

Conway Gittens, Reuters