Bernanke ready to act as jobs top the agenda for Obama
AS President Obama prepared to deliver an important speech on jobs late last night, Fed Reserve chief Ben Bernanke said policy makers will discuss the tools they could use to boost the recovery at their next meeting this month, and stand ready to use them if necessary.
Policy makers "are prepared to employ these tools as appropriate to promote a stronger economic recovery in the context of price stability," Bernanke said in a speech to economists yesterday in Minneapolis.
As in a speech on August 26 in Jackson Hole, Wyoming, the Fed chief stopped short of signaling what he thinks is the Fed's best option to aid the economy. He said in previous remarks that the Fed's options to bolster the recovery include lengthening the average duration of securities in its $1.65 trillion Treasury portfolio and buying more government bonds.
The Standard & Poor's 500 Index declined after release of the speech, falling 0.8pc to 1,189 in New York. Yields on 10-year Treasuries declined five basis points to 1.99pc, according to Bloomberg Bond Trader prices.
"This market is looking for assistance and what it wants is a wheelchair and someone to push it," Burt White, who helps oversee $330bn as chief investment officer at LPL Financial in Boston, said in an interview.
Bernanke, echoing another comment from Jackson Hole, said that fiscal tightening by Congress may hobble the fragile economic recovery.
"A substantial fiscal consolidation in the shorter term could add to the headwinds facing economic growth and hiring,"
he said. Policy makers are scheduled to meet on September 20-21.
While Bernanke said Congress and President Obama must put the federal government's finances on a "sustainable trajectory" over the long term, he warned that policy makers should not "disregard the fragility of the economic recovery."
On inflation, Bernanke said, "we see little indication that the higher rate of inflation experienced so far this year has become ingrained in the economy."
The speech is the first time Bernanke has commented about the economy since a government report last week showed that hiring stalled in August.
Employers did not add any net new jobs to their payrolls last month, the worst showing in almost a year, and the unemployment rate remained stuck at 9.1pc.
The Fed will decide at its September meeting whether to replace short-term Treasury securities in its portfolio with long-term bonds in an effort to lower rates on everything from mortgages to car loans, according to predictions from economists at Wells Fargo and Barclay's Capital and T Rowe Price Associates Inc.
"The weakness of the housing sector and continued financial volatility are two key reasons for the frustratingly slow pace of the recovery," Fed chief Bernanke said.