Federal Reserve Chairman Ben Bernanke on Wednesday outlined the central bank’s plan to disentangle itself from the financial markets after a period of unprecedented intervention, telling lawmakers that the Fed would likely raise interest rates in the near future to begin that process.

In prepared testimony Bernanke was scheduled to deliver to a Congressional committee, he planned to tell lawmakers that the Fed was prepared to increase short-term interest rates as soon as the economy was on more sound footing.

“Although at present the U.S. economy continues to require the support of highly accommodative monetary policies, at some point the Federal Reserve will need to tighten financial conditions by raising short-term interest rates and reducing the quantity of bank reserves outstanding,” he wrote. “We have spent considerable effort in developing the tools we will need to remove policy accommodation, and we are fully confident that at the appropriate time we will be able to do so effectively.”

The Fed’s tightening of credit controls by raising short-term interest rates, which are already at nearly zero, has the potential to make credit even harder to get because it would cost borrowers more to take out a loan.

“Toward the end of 2010, the bulk of the money from the economic stimulus program will be gone. The Federal Reserve will have embarked on an exit strategy and start hiking the interest rate by then. Consumers are not likely to go on a spending spree anytime soon. Even if they were willing to spend, credit won’t be available to support spending,” Sung Won Sohn, economist at California State University, told AFP.

The plan is part of the central bank’s strategy to rein in the cash it shelled out in the wake of the financial crisis. Through emergency loans, infusion of cash and other programs designed to sure up the nation’s financial sector, the Fed’s balance sheet ballooned to $2.29 trillion.

“The Fed wants to prepare the markets and provide a road map for the unwinding of more than one trillion dollars in excess liquidity,” he said.

Stocks fell on Wednesday after the Fed released Bernanke’s 10-page written statement. The Dow Jones Industrial Average was down 11 points. The Standard & Poor’s 500-share index edged down 0.1 percentage points.

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