U.S. Fed Chairman Ben Bernanke said Friday the economic recovery has weakened more than expected and the Federal Reserve is ready to take further steps if the slowing economy were to deteriorate significantly.
The Fed: “The [FOMC] is prepared to provide additional monetary accommodation through unconventional measures if it proves necessary, especially if the outlook were to deteriorate significantly,” Bernanke told the Fed conference, held in Jackson Hole, Wyoming. According to the Fed Chief the issue at this stage is not whether the central bank has “the tools to help support economic activity and guard against disinflation. We do,” Bernanke said. “[T]he issue is instead whether, at any given juncture, the benefits of each tool, in terms of additional stimulus, outweigh the associated costs or risks of using the tool.”
Mr. Bernanke made it clear, however, that the Fed has not decided what would prompt additional easing.
“Each of the tools that the FOMC has available to provide further policy accommodation–including longer-term securities asset purchases, changes in communication, and reducing the IOER rate–has benefits and drawbacks, which must be appropriately balanced. Under what conditions would the FOMC make further use of these or related policy tools? At this juncture, the Committee has not agreed on specific criteria or triggers for further action, but I can make two general observations.
First, the FOMC will strongly resist deviations from price stability in the downward direction. Falling into deflation is not a significant risk for the United States at this time, but that is true in part because the public understands that the Federal Reserve will be vigilant and proactive in addressing significant further disinflation. It is worthwhile to note that, if deflation risks were to increase, the benefit-cost tradeoffs of some of our policy tools could become significantly more favorable.
Second, regardless of the risks of deflation, the FOMC will do all that it can to ensure continuation of the economic recovery. Consistent with our mandate, the Federal Reserve is committed to promoting growth in employment and reducing resource slack more generally. Because a further significant weakening in the economic outlook would likely be associated with further disinflation, in the current environment there is little or no potential conflict between the goals of supporting growth and employment and of maintaining price stability.” [emphasis added]
Bernanke’s remarks came shortly after the government said the economic growth slowed sharply in the 2Q to a 1.6 percent pace.
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