Federal Reserve Chairman Ben Bernanke offered no silver bullet to help the struggling economy today. But he says the central bank still has weapons at its disposal that it can tap if necessary.
In a much anticipated speech in Jackson Hole, Wyo., Bernanke said the Fed "will continue to assess the economic outlook in light of incoming information and is prepared to employ its tools as appropriate to promote a stronger economic recovery in a context of price stability."
Markets had been carefully watching the chairman's remarks for clues to any future Fed action, and stocks intially dropped, before later recovering, as word came that he did not outline any new steps for boosting the economy. The central bank has already deployed its most potent weapon for boosting the economy: it has lowered short-term interest rates to near zero, and has said it's willing to keep them low for two more years.
There were fresh signs this morning that the economy may need additional help. The Bureau of Economic Analysis revised its estimate of second-quarter growth downward to just a 1 percent annual rate.
"When growth is so weak and the economy is almost at stall speed if you will, it's not going to take much to knock us down," says Nariman Behravesh, chief economist at IHS Global Insight. "And it's that kind of vulnerability to shock that has us quite concerned."
Bernanke spoke at this same conference a year ago amid similar fears, and laid the groundwork for an aggressive bond-buying program by the Fed. Some hoped for a similar monetary boost this year. But with inflation inching up, Bernanke has less room to maneuver.
Early next month, President Obama is expected to outline his own plan to boost hiring, and he has said it will include some additional government spending.
Bernanke said such efforts may be warranted, even as the government wrestles with its long-term deficits.
"Our economy is suffering today from an extraordinarily high level of long-term unemployment, with nearly half of the unemployed having been out of work for more than six months. Under these unusual circumstances, policies that promote a stronger recovery in the near term may serve longer-term objectives as well," Bernanke said.
He added that branches of government other than the Fed have a central role to play in boosting the recovery.
"Most of the economic policies that support robust economic growth in the long run are outside the province of the central bank," he said.
Others agree that it's time for the president and Congress to take the lead in setting economic policy, rather than relying so heavily on the central bank.
"The best the Fed can do is buy some time for the other agencies to wake up," said Mohamed El-Erian, CEO of the giant PIMCO bond fund. "It can provide a bridge. But if the other agencies do not wake up, it will be a bridge to nowhere."
Our original post from 10:17 a.m. ET (followed by some excerpts):
Federal Reserve Chairman Ben Bernanke's much-anticipated speech this morning on the current state of the economy and Fed policy has just been put online by the Fed.
And as many Fed watchers predicted, he does not appear to have signaled any shifts in policy or thinking by the central bank's policy makers. On Wall Street, stocks are falling on word that the Fed isn't likely to take any new steps to boost the economy.
We're expecting a report from NPR's Scott Horsley, who is covering the Jackson Hole, Wyo., conference where Bernanke is speaking this hour. We'll update this post when we hear from Scott.
Meanwhile, here are some excerpts from Bernanke's as-prepared-for-delivery address:
-- "It is clear that the [economic] recovery from the crisis has been much less robust than we had hoped."
-- "Monetary policy must be responsive to changes in the economy and, in particular, to the outlook for growth and inflation. As I mentioned earlier, the recent data have indicated that economic growth during the first half of this year was considerably slower than the Federal Open Market Committee had been expecting."
-- "Consequently, although we expect a moderate recovery to continue and indeed to strengthen over time, the Committee has marked down its outlook for the likely pace of growth over coming quarters."
-- "In light of its current outlook, the Committee recently decided to provide more specific forward guidance about its expectations for the future path of the federal funds rate. In particular, in the statement following our meeting earlier this month, we indicated that economic conditions — including low rates of resource utilization and a subdued outlook for inflation over the medium run — are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013."
-- "In addition to refining our forward guidance, the Federal Reserve has a range of tools that could be used to provide additional monetary stimulus. We discussed the relative merits and costs of such tools at our August meeting. We will continue to consider those and other pertinent issues, including of course economic and financial developments, at our meeting in September, which has been scheduled for two days (the 20th and the 21st) instead of one to allow a fuller discussion. The Committee will continue to assess the economic outlook in light of incoming information and is prepared to employ its tools as appropriate to promote a stronger economic recovery in a context of price stability."