Bernanke: Fed to begin tapering bond purchases later this year

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Federal Reserve Chairman Ben Bernanke said the central bank anticipates beginning tapering bond purchases later this year but that policy will remain accommodative and could change depending on the incoming economic data.

In his semiannual monetary report before the House financial services committee, the Fed chairman said, "With unemployment still high and declining only gradually, and with inflation running below the Committee's longer-run objective, a highly accommodative monetary policy will remain appropriate for the foreseeable future."

Bernanke said that if the incoming economic data confirms a strengthening labor market and inflation moving back toward the central bank's 2 percent target, "We anticipated that it would be appropriate to begin to moderate the monthly pace of purchases later this year."

But he emphasized that this plan is not "a preset course" and could be changed depending on the incoming economic data.

In the question and answer portion of the testimony, Bernanke said that not providing the market with guidance about its plans for monetary policy would have "risked increased buildup of leverage or excessively risky positions in the market," and that the unwinding of those positions is the reason for some of the market volatility.

"Markets are beginning to understand our message and the volatility has obviously moderated," Bernanke added.

He also reiterated previous remarks that the central bank could continue to reduce the pace of asset purchases through the first half of next year, ending them around midyear so long as the economy continues to improve and inflation normalizes.

"The prepared remarks from Bernanke's testimony do not appear to break any new ground," Brown Brothers Harriman's Marc Chandler wrote in a note. "They reflect what has said recently and several times he drives home this point. The prepared statement is peppered with phrases such as 'as I have said.'"

Bernanke also sought to draw the distinction between reducing asset purchases and providing accommodative monetary policy, saying "We are relying on near-zero short-term interest rates, together with our forward guidance that rates will continue to be exceptionally low—our second tool—to help maintain a high degree of monetary accommodation for an extended period after asset purchases end."

(Read more: Bernanke: Highly accommodative policy needed for 'foreseeable future')

According to the Fed's forecasts from the June meeting, unemployment is expected to be about 7.2 percent to 7.3 percent by the end of 2013 and 6.5 percent to 6.8 percent by the end of 2014.

He also said that there's not much evidence that the structural component of unemployment has increased and that a 5 percent jobless rate is achievable.

Bernanke said that the economic recovery has continued at a "moderate pace" in recent quarters despite the negative impact of restrictive fiscal policy. In the Q&A, Bernanke said U.S. fiscal policy was focusing too much on the "short-run and not enough on the long run."

GDP growth is also expected to be 2.3 percent to 2.6 percent this year before accelerating to 3.0 percent to 3.5 percent next year, according to Fed forecasts.

In May, Bernanke spooked markets when he told Congress that the central bank could start to reduce its $85 billion per month in bond purchase within in the next few meetings, leading markets to anticipate a reduction in bond buying as early as September. He later said that the bond-buying could eventually end by mid-2014.

"We have not seen that our purchases are disrupting the Treasury market in any way. And we believe they have been effective in keeping interest rates low," he said in response to a question.

Fears that the Fed would start paring back its bond purchases imminently had sent benchmark 10-year Treasurys falling with yields rising as high as 2.76 percent earlier this month. But renewed expectations that the central bank will keep policy accommodative have helped soothe investor fears, with bond yields falling back below 2.5 percent on Wednesday.

Bernanke also suggested that the recent rise in mortgage rates is due in part to better economic news.

—By CNBC's Justin Menza. Follow him on Twitter @JustinMenza.