Bernanke Pledges Help For Economy

Federal Reserve Chairman Ben Bernanke warned on Friday of “daunting” challenges facing the economy and pledged further action to boost the lackluster recovery if it does not show more improvement.

In a widely anticipated speech to a gathering of policymakers and influential economists in Jackson Hole, Wyo., Bernanke also repeated his warnings about threats posed to the economy by the crisis in Europe and a standoff between Congress and the White House over tax and budget issues known as the “fiscal cliff.”

“Taking due account of the uncertainties and limits of its policy tools, the Federal Reserve will provide additional policy accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability,” Bernanke said in remarks prepared for delivery.

While Bernanke steered clear of indicating the timing of any Fed actions, the speech to the economic symposium sponsored by the Federal Reserve Bank of Kansas City is likely to reinforce expectations that the Fed will again employ some of the tools at its disposal for lifting growth, such as government bond purchases known as “quantitative easing” or QE, and also communicating with financial markets about its expectations for short-term interest rates.

Tellingly, Bernanke spoke in great detail about the Fed's use in the aftermath of the Great Recession of unconventional monetary policy tools and said there was strong evidence that these methods had helped the economy. The Fed has traditionally influenced the economy through changes in short-term interest rates but with such rates already near zero, it reached limits of its ability to use that lever.

Bernanke’s emphasis on the effectiveness of these tools signals the Fed’s willingness to use them again, though the Fed chairman said the bar for the employing unconventional tools is higher than it would be for the traditional lever of short-term interest rates.

The Fed’s policy arm, the Federal Open Market Committee, holds its next meeting on Sept. 12-13. Economists are on the fence about whether the Fed will announce further action at that meeting. Fresh data on the job market due out next Friday could be pivotal.

Though a few hopeful signs had emerged on the economy, including signs of improvement in the battered housing market and some strengthening in manufacturing, Bernanke said growth remained “far from satisfactory” and was being held back “by a number of headwinds.”