Bernanke signals no imminent steps to aid economy
WASHINGTON (AP) — Chairman Ben Bernanke said the Federal Reserve is prepared to take further steps to lift the U.S. economy if it weakens. But he didn't signal any imminent action in testimony before a congressional panel Thursday.
Bernanke said the European debt crisis poses significant risks to the U.S. financial markets. He noted that U.S. unemployment remains high and the outlook for inflation subdued.
But Bernanke said that he expects economic growth to continue at a moderate pace this year.
"As always, the Federal Reserve remains prepared to take action as needed to protect the U.S. financial system and economy in the event that financial stresses escalate," Bernanke told the congressional Joint Economic Committee.
The absence of a firm commitment to more stimulus appeared to cool an early rally on Wall Street. The Dow Jones industrial average was up 97 points shortly after noon. It had been up as much as 140 points before his testimony was made public.
The Fed could buy more bonds to lower long-term interest rates, which would encourage more borrowing and spending. Or it could extend its plan to keep short-term rates near zero beyond late 2014.
But most economists don't expect further moves at the Fed's next policy meeting June 19-20, despite some signals from other Fed members in recent days.
For one thing, long-term rates have already touched record lows. Even if rates did decline further, analysts say they might have little effect on the economy.
And Bernanke may face pressure not to pursue further stimulus before the November election because such steps could be perceived as helping President Barack Obama win re-election.
John Ryding and Conrad DeQuadros, economists at RDQ Economics, said there was nothing in the testimony to "tip Bernanke's hand" ahead of the June meeting of the Federal Open Markets Committee, the Fed's policy committee.
"Yes the Fed Chairman said the Fed stands ready to act if Europe poses a threat to the U.S. financial system or the economy. However, he gave no specifics and essentially repeated the language from the FOMC statement," they wrote in a note to clients.
The economy added 252,000 jobs a month from December through February. Since then, job growth has slowed to a lackluster 96,000 a month. In May, U.S. employers added just 69,000 jobs — the fewest in a year.
Like many economists, Bernanke said an unusually warm winter may have accelerated some hiring that normally would have taken place in spring. That may have weakened hiring in April and May.
Still, Bernanke said a key question is whether some of this winter's hiring was done to make up for excessive job cuts that took place during the recession. If that is the case, and those companies have mostly completed the so-called "catch-up" hiring process, then stronger economic growth would be needed to bring hiring back to healthier levels.
"That is the essential question we will have to look at," Bernanke told the panel.
The government reported last week that the economy grew at a sluggish annual rate of 1.9 percent the first three months of 2012. That is consistent with monthly job growth of around 90,000.
The Fed's policy committee has been split between those who favor doing everything possible to strengthen the economy and reduce unemployment and those more concerned about inflation risks.
On Wednesday, Janet Yellen, the vice chairman of the Fed, Dennis Lockhart, the head of the Atlanta regional Fed Bank, and John Williams, president of the San Francisco Fed bank, all expressed the view that the Fed may need to do more to provide support,
But Rep. Kevin Brady, R-Texas, warned against more bond buying at the hearing. He said it could raise the risks of inflation.
"It is my belief that the Fed has done all that it can do and has perhaps done too much," Brady, the vice chairman of the committee, said.
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