Chairman Ben Bernanke proposed no new steps by the Federal Reserve to stimulate the economy in a speech Friday from an annual economic conference in Jackson Hole, Wyoming. However, Bernanke did hint that Congress should act to stimulate hiring and growth.
While maintaining his position that low interest rates will promote growth over time, Bernanke admitted that the economy needs more short-term help. His speech came less than two hours after the Commerce Department reported that the economy grew at an annual rate of just 1% during the second quarter, a figure downwardly revised from previous estimates, and only grew 0.7% for the first six months of the year.
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Still, Bernanke remained optimistic about long-term growth prospects, and said the job market and economy will return to full health, though he did not say when he thought that may be. With many hoping for another round of quantitative easing like that announced last year from Jackson Hole, stocks moved lower after Bernanke’s speech failed to reassure investors.
The inaction of the Federal Reserve is worrisome to Americans, as consumer spending has slowed, home prices are still depressed by foreclosures that continue to flood the market, unemployment remains high, and workers’ pay is barely rising. With Europe experiencing similar economic woes, consumers and investors alike are becoming more fearful of a double-dip recession, with economists continually raising the odds of its likelihood.
With Congress focused on shrinking the deficit, almost exclusively through spending cuts, it seems unlikely Americans can look to them to stimulate the economy with new spending. For that reason, Americans were hoping that the Federal Reserve would step in and give the economy a much-needed boost. While pledging to keep short-term interest rates near zero through mid-2013 earlier this month may have been a step in that direction, those hoping for more were sorely disappointed by Bernanke’s speech this morning.
However, there is still some cause for hope. Bernanke promised that, “The Federal Reserve will certainly do all that it can to help restore high rates of growth and employment.” He also announced that a one-day meeting of the Fed, originally scheduled for September 20, would be expanded to two days to “allow further discussion” of how the Fed might act to stimulate the economy, though Bernanke warned that the Fed’s powers are limited. “Most of the economic policies that support robust economic growth in the long run are outside the province of the central bank,” said Bernanke, adding that Congress has the power to act where the Fed cannot.