Federal Reserve Chairman Ben S Bernanke said the US central bank “will do all that it can” to ensure a continuation of the economic recovery, and outlined steps it might take if the growth slows.
“The Committee is prepared to provide additional monetary accommodation through unconventional measures if it proves necessary, especially if the outlook were to deteriorate significantly,” the Fed chairman said today in opening remarks to central bankers from around the world at the Kansas City Fed’s annual monetary symposium held in Jackson Hole, Wyoming.
The Fed chairman gave a detailed analysis of the economy and said growth during the past year has been “too slow” and unemployment “too high”. Still, he said a handoff from fiscal stimulus and inventory re-stocking to consumer spending and business investment “appears to be under way.” He also said that the “preconditions” for growth in 2011 are “in place”.
Bernanke said the risk of an “undesirable rise in inflation or of significant further disinflation seems low.” He said the Fed has several tools if prices decelerate, or job growth stagnates, including shifting the composition of its bond reinvestment strategy.
Stocks fluctuated after Bernanke’s comments and as Intel Corp said third-quarter revenue will be below its previous forecast. The Standard & Poor’s 500 Index was little changed at 1,047.04 at 10.16 am in New York.
Exit on hold
Federal Reserve officials put their exit strategy on hold this month and decided to purchase Treasury securities to keep their portfolio from shrinking as their mortgage bonds mature. Economists at Goldman Sachs Group and JPMorgan Chase & Co say the Fed could boost monetary stimulus if the economy continues to deteriorate.
“The Federal Open Market Committee’s (FOMC) recent decision to stabilise the Federal Reserve’s securities holdings should promote financial conditions supportive of recovery,” Bernanke said in the 19-page text of his prepared remarks. “Additional purchases of longer-term securities, should the FOMC choose to undertake them, would be effective in further easing financial conditions.”
Jackson RHole
The Kansas City Fed is hosting central bankers from more than 40 countries including Brazil, Malawi and New Zealand this year as well as economists from firms such as Bank of America, Morgan Stanley and International Strategy & Investment Group. US central bankers next meet on September 21 for a one-day meeting.
The Commerce Department today cut its estimate for US economic growth in the second quarter to an annual pace of 1.6 per cent from an initially reported 2.4 per cent pace. Reports on employment, manufacturing and housing in the past month have indicated the recovery is faltering.
“Incoming data suggest that the recovery of output and employment in the United States has slowed in recent months, to a pace somewhat lower than most FOMC participants projected earlier this year,” Bernanke said. “Consumer spending may continue to grow relatively slowly in the near term,” he added.
