Bernanke Won't Rule Out More Asset Purchases
August 31, 2012
Federal Reserve Chairman Ben S. Bernanke said he would not rule out further bond purchases to boost growth and reduce unemployment, which he called a “grave concern.”
“The costs of nontraditional policies, when considered carefully, appear manageable, implying that we should not rule out the further use of such policies if economic conditions warrant,” Bernanke said today in a speech to central bankers and economists at an annual forum in Jackson Hole, Wyoming.
Bernanke’s speech comes two weeks before he leads a meeting of the Federal Open Market Committee to decide whether an expansion of the Fed’s record stimulus is needed to spur growth. Two rounds of large-scale asset purchases totaling $2.3 trillion have so far failed to reduce the jobless rate below 8 percent more than three years into the recovery.
Bernanke’s 24-page speech at the Kansas City Fed’s symposium reviewed the Fed’s policy actions through the financial crisis and use of nontraditional policy tools such as communication and outright bond purchases, concluding that they have been effective in boosting growth and improving financial conditions. He said that declines in the unemployment rate would continue only if growth picks up above its longer term trend.
“We have seen no net improvement in the unemployment rate since January,” Bernanke told central bankers and economists in the audience, according to a text of his remarks released in Washington. “Unless the economy begins to grow more quickly than it has recently, the unemployment rate is likely to remain far above levels consistent with maximum employment for some time.”
The Fed chairman said long periods of high unemployment produce “enormous suffering and waste of human talent” and also risk causing “structural damage on our economy that could last for many years.”
Policy makers at their Aug. 1 meeting were moving toward additional action, according to minutes released last week. Many members of the panel said more stimulus will be needed “fairly soon” unless the recovery shows signs of a “substantial and sustainable strengthening.”
The Fed chairman echoed those remarks, concluding his speech by saying “the Federal Reserve will provide additional policy accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.”
Since the August meeting, data on housing, manufacturing and retail sales have exceeded expectations.
Retail sales rose 0.8 percent in July, the most in five months, and sales of existing homes rose from an eight-month low. Consumers increased spending for the first time in three months, government data showed yesterday, and retailers such as Gap Inc. and Macy’s Inc. posted same-store sales this month that topped analysts’ estimates.