Federal Reserve Chairman Ben Bernanke's two-day testimony to the U.S. Senate and the House of Representatives, which begins Tuesday, will be closely-watched for any new revelations on government programs to rescue the U.S. economy.

Most economists say Bernanke's testimony may not hold much new information last week's speech and Q&A session with the press as well as the release of minutes from the Jan. 28 Federal Open Market Committee meeting.

Still, Bank of Tokyo-Mitsubishi economist Ellen Zentner said that when Bernanke speaks, the market watches. She said he would probably have to justify the Fed's recent forecast downgrades "and possibly lay out, albeit in a broad sense, what additional steps can be taken by the government to help turn around the U.S. economy".

He needs to show the Fed still has tools to save the economy, she said.

Economists at Deutsche Bank called his testimony "potentially one of the most significant [events] in terms of market impact".

In the minutes from its January meeting, the Fed introduced an initiative to release long-term forecasts for the U.S. economy and also mooted an unofficial 2% inflation target.

Sal Guatieri, economist with BMO Capital Markets, said that a de-facto target could commit the fed to an "easy policy stance" long after risks of deflation subside. Guatieri said Bernanke may discuss this target, as well as a continued commitment to a zero-interest rate policy.

The FOMC minutes for January also confirmed the Fed is toying with the idea of buying long-term bonds.

Zentner said any plan to buy bonds will not be officially announced by Bernanke in his prepared remarks this week, but that he could mention the potential conditions under which the Fed would start buying the bonds.

If he did, the purpose would be to bring mortgage rates down, she said.

By Megan Ainscow and edited by Stephen Huebl
©CEP News Ltd. 2009