Chairman: Fed ‘will do all it can’ to stimulate economic recovery

Federal Reserve Chairman Ben Bernanke said Friday the central bank is ready to act with new stimulus efforts to ward off a further U.S. economic slowdown.

Amid repeated signs that the economy is suffering under the weight of high unemployment, low consumer spending and slow growth, Bernanke said the Fed has several options to boost the economy even with interest rates now near zero.

In a wide-ranging speech in Jackson Hole, Wyo., Bernanke said the Fed’s monetary policymaking committee, “will do all that it can to ensure continuation of the economic recovery.” The central bank has injected trillions of dollars into the U.S.
economy since the fall of 2008 in an effort to stabilize the financial
sector and prop up the broader economy.

Bernanke outlined a series of possible Fed tools to put more money into
the economy, including further purchases of longer-term securities and
lower interest rates on reserves that banks place with the Fed. He did
not say any move is imminent.

“The task of economic recovery and repair remains far from complete,” Bernanke said.

While President Obama has pushed for a series of stimulus efforts for small businesses and teachers, Congress appears unlikely to pass any new large stimulus package similar to the $787 billion lawmakers approved early last year. With lawmakers skittish about voting for more fiscal spending, attention has turned to the Fed’s monetary tools to stimulate the economy.

Bernanke said the economic slowdown was sharper than the Fed had initially projected. Earlier on Friday, the Commerce Department estimated the economy grew at 1.6 percent in the second quarter of the year. That was slower than the initial 2.4 percent estimate. 

“Despite this recent slowing, however, it is reasonable to expect some pickup in growth in 2011 and in subsequent years,” Bernanke said.

The Fed recently moved to keep its balance sheet at its current level of about $2 trillion instead of allowing it to contract, removing money from the economy. The Fed said it would reinvest maturing mortgage-backed securities and agency debt in longer-term Treasury debt.

Bernanke said about $400 billion would have matured by the end of 2011, meaning that amount of monetary stimulus would have drained out of the economy without its recent move.