Bernanke says Fed may do more to boost economy
The stubbornly high unemployment rate remains a major concern to policy makers as Federal Reserve Chairman Ben Bernanke today suggested that the central bank would take additional measures to stimulate the economy.
“The prospect is of central concern to economic policy makers, because high rates of unemployment – especially longer term unemployment – impose a very heavy burden on the unemployed and their families,” Bernanke said in his prepared remarks. “More broadly, prolonged high unemployment would pose a risk to consumer spending and hence to the sustainability of the recovery.”
With Fed policy makers scheduled to meet early next month, Bernanke’s speech has been highly anticipated by financial markets and analysts looking for signals of what the Fed might do next to boost the lagging recovery. The Fed has already cut its key short-term interest rate to near zero, and said it intends to hold it there for the foreseeable future.
Increasingly, it appears that Fed could resume buying government and other bonds to lower long-term interest rates, such as mortgages. During the recession, the Fed bought some $1.7 trillion in government bonds, mortgage backed securities, and debt to provide additional stimulus to the economy.
Some critics of these purchases, as well as of the Fed’s ultra-low interest policies, say the central bank risks igniting inflation by pumping so much money into the economy. Bernanke, however, suggested that deflation, a destructive downward spiral of prices that deepens economic slumps, appears a greater risk because of weak demand. Inflation has increased by only about 1 percent over the past year.
He said he was confident the Fed could withdraw stimulus from the economy before inflation became a problem, according to several inflation measures.
“The Federal Reserve remains committed to pursuing policies that promote our dual objectives of maximum employment and price stability,’’ Bernanke said. “In particular, [the Fed] is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation over time to levels consistent with our mandate.