Bernanke: Central Bank Will Do 'All It Can'

Federal Reserve Board Chairman Ben Bernanke addressed the annual economic symposium hosted by the Kansas City Federal Reserve Board in Jackson Hole Friday. The central bankers provide the Fed's evaluation of the national economic condition.

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MELISSA BLOCK, host: This is ALL THINGS CONSIDERED from NPR News. I'm Melissa Block.

ROBERT SIEGEL, host: And I'm Robert Siegel. Federal Reserve Chairman Ben Bernanke said today that the central bank will do all that it can to restore economic growth and jobs in the U.S. But he offered no specifics and made no promise of additional Fed action any time soon. The stock market initially sank on the news but later rallied, perhaps in response to Bernanke's forecast for long-term economic growth. From Jackson Hole, Wyoming, NPR's Scott Horsley reports.

SCOTT HORSLEY: Bernanke's speech had a gorgeous backdrop, the scenic Jackson Lake Lodge, the site of an annual policy conference. And the Fed chairman's long-range forecast was as bright as the morning sunshine, glinting off the Teton Range. But Bernanke also acknowledged economic clouds on the near horizon. Unemployment is still above 9 percent, and the Commerce Department said today the economy grew at a measly annual rate of 1 percent during the second quarter.

Policymakers have tried to blame this sluggish recovery on temporary factors, like the Japanese tsunami or the jump in oil prices that followed the Arab Spring. But Bernanke acknowledged today more persistent factors are also dragging the economy down, including the deep slump in the housing market. With that in mind, he said, Fed leaders are extending their September meeting for a second day, in which they'll discuss whether to use some of the additional tools available to them to stimulate the economy.

Chief Economist Nariman Behravesh, of the forecasting firm IHS Global Insight, says the Fed has already worn out its biggest hammer, pounding short-term interest rates about as low as they'll go and suggesting they'll stay there for two more years.

Dr. NARIMAN BEHRAVESH: Clearly, the power of monetary policy is considerably diminished when interest rates get down close to zero. The Fed is not powerless here. But its powers are somewhat diminished, just by virtue of the fact that we're in this very low interest rate world right now.

HORSLEY: Some were hoping for more from Bernanke's speech today. At the same conference last year, he laid the groundwork for what became known as QE2, a strategy of aggressive bond buying that's credited with temporarily boosting the stock market. Since then, though, fears of inflation have resurfaced, and some politicians have begun to criticize the Fed for going too far. So Bernanke was cautious in his remarks today. He pointed out that a lot of economic policy is set not by the Fed but by Congress and the White House, and he suggested short-term measures could help by putting more people back to work. Mohamed El-Erian, who heads the giant PIMCO bond fund, says the recovery is fragile indeed.

Dr. MOHAMED EL-ERIAN: We are right now in a very delicate situation. Think of the image of our economy is traveling on this very bumpy road. It has used all its spare tires. In that circumstance, you do not want to blow a tire.

HORSLEY: Bernanke said Congress and the White House didn't help matters with their recent fight over the debt ceiling, which rattled financial markets and probably hurt the economy. El-Erian agrees with the Fed chairman, saying the government needs to do a better job of crafting economic policy.

EL-ERIAN: Right now, most policymakers - with the exception of the Fed - are basically asleep at the wheel. We have seen very little policy actions out of Washington. We need a major reformulation of the policymaking process because, if we stay paralyzed like this, we will end up blowing quite a few tires - and we don't have many spares left on this car.

HORSLEY: President Obama, who also likes automotive metaphors, is preparing to unveil his jobs proposal early next month. It's not clear in this political climate whether that plan will find any traction. Scott Horsley, NPR News, Jackson Hole, Wyoming.

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