In a key speech on the economy Friday, Federal Reserve Chairman Ben Bernanke proposed no new steps to boost growth, but did hint that Congress may need to act to stimulate hiring and the economy.
Speaking at an annual economic conference in Jackson Hole, Wyo., Bernanke said that while record-low interest rates will promote economic growth over time, the weak economy requires further help in the short run.
“It is clear the recovery from the crisis has been much less robust than we had hoped,” he said in remarks prepared for delivery to the annual Fed retreat. Bernanke added that “the recession, besides being extraordinarily severe as well as global in scope, was also unusual in being associated with both a very deep slump in the housing market and a historic financial crisis.” These two issues “have acted to slow the natural recovery process,” he said.
Bernanke also noted that the Fed will meet for two days in September instead of the planned one day to mull its options to provide additional monetary stimulus, among other topics, leaving open the possibility that the Fed will take further steps to strengthen the economy.
Wall Street took a tumble as traders reacted with disappointment to Bernanke’s speech. The Dow Jones industrial average fell as much as 221 points after news of Bernanke’s speech was released, but was lately off those lows and moving sharply higher. Earlier this week, stock prices rallied as investors wagered the Fed could announce a new program to combat softness in the economy.
“I wasn't expecting him to say anything grand and he didn’t,” said John Canally, an investment strategist and economist at LPL Financial in Boston. “The biggest bombshell was that the Fed is going to meet for two days instead of one in September.”
The Fed chairman said long-term deficit reduction is necessary. But he emphasized that future economic health could be jeopardized if hiring and growth are not strengthened now.
"Fiscal policymakers should not ... disregard the fragility of the current economic recovery," he said.
Bernanke also was critical of Congress' handling of this summer's battle over raising the debt ceiling. He said it disrupted the economy, and another episode like that could have long-term negative consequences.
Bernanke's speech comes at a critical moment for the economy. Some economists worry that another recession might be near.
A big reason is that consumer spending has slowed. Home prices are depressed. Workers' pay is barely rising. Household debt loads remain high.
All that, compounded by Europe's debt crisis, has spooked the stock markets and unnerved consumers. Congress is focused on shrinking deficits and seems unlikely to back any new spending to try to energize the economy.
That's why many have looked with anticipation to the Fed to do more. The central bank has already kept short-term interest rates near zero for 2½ years. And earlier this month, it said it would keep them there through mid-2013.
Bernanke’s speech follows news Friday morning that the economy grew at an annual rate of just 1 percent this spring and 0.7 percent for the first six months of the year. Only slightly healthier expansion is foreseen for the second half.
At last year’s Jackson Hole event, Bernanke signaled that the Fed would embark on a new Treasury-buying program — a $600 billion effort that helped keep rates low and helped lift stock prices. It ended in June.
Most economists didn’t expect Bernanke to herald a new round of bond purchases, but a number of them had speculated he might propose some other option to keep downward pressure on rates.
Click here for the full text of Bernanke’s speech.