27 August 2010
U.S. Central Bank Chief Says Fed Could Act to Shore Up Economy
Washington — Federal Reserve Chairman Ben Bernanke said the U.S. central bank will not hesitate to use policies at its disposal to support the economic recovery and prevent the U.S. economy from spiraling into a period of deflation.
Concerns have been raised among economic experts, even within the U.S. central bank, that the U.S. economy could be heading for trouble, as the potential for a period of deflation (a decline in general price levels) combined with sluggish growth increases. The combination has affected Japan’s economy for two decades.
In an anxiously awaited August 27 speech at a U.S. central bankers’ gathering in Wyoming, Bernanke said the Federal Reserve is prepared to resume its large purchases of long-term securities to help sustain economic growth if the recovery falters or inflation declines further. He said such a policy would be an option preferred to other possible approaches. Having driven down short-term interest rates close to zero, the U.S. central bank has a limited range of “unconventional” options left to support the economy.
The Federal Reserve spent $1.7 trillion buying government bonds and other securities in a program that ended in March. Bernanke credited this program with contributing to economic stabilization and recovery, as it helped to keep home loans and other long-term borrowing rates low.
Bernanke said the policymaking committee of the Federal Reserve has not agreed on specific criteria or a trigger for any “unconventional” action.
He acknowledged that the pace of growth in the overall economy is “somewhat less vigorous than we expected,” because of restrained consumer spending and weakness in construction.
On the day he spoke, the Commerce Department announced the economy grew at a much slower pace in the second quarter than previously estimated. The department revised down to 1.6 percent from 2.4 percent its earlier estimate of the annualized rate of growth of the U.S. gross domestic product (GDP).
Bernanke said growth would continue in the second half of the year, “albeit at a relatively modest pace.” For 2011 and subsequent years, he said, “it is reasonable to expect some pickup in growth,” with unemployment “likely to decline only slowly.” He noted that in recent quarters actual household saving has been higher than earlier estimates, a development that will allow consumers flexibility to spend more as the economy, and confidence in it, improve.
Bernanke played down a sharp increase in the U.S. trade deficit in the second quarter. He said it “seems to have reflected a number of temporary and special forces.” The June trade gap of close to $50 billion as reported by the Commerce Department was the largest in 19 months.
The full text of Bernanke’s remarks is available on the Federal Reserve’s website, and a news release on GDP is available on the Commerce Department website.
(This is a product of the Bureau of International Information Programs, U.S. Department of State. Web site: http://www.america.gov)
