Sun, Aug 29, 2010 - Page 11 News List

Bernanke vows to take action as recovery slows

OUT OF STEAM Recent economic data have been below modest expectations and economists are reducing their growth forecast for the third quarter

AFP, WASHINGTON

The US Federal Reserve chief has vowed to take aggressive steps to boost the US economy as growth slowed rapidly in the second quarter.

However, Ben Bernanke, the central bank chairman, said on Friday prospects for a pick up in economic expansion next year appeared to remain despite the sharp government cutback on Friday of economic growth in the April to June period, to 1.6 percent.

The growth revision, down more than half from 3.7 percent in the first quarter came on the heels of a massive trade deficit and weak private inventory investment, signaling a more pronounced slowdown in recovery from recession.

The White House acknowledged on Friday the lowered estimates meant more work was needed to keep the recovery on track.

“Four consecutive quarters of economic growth is positive news, but the revised numbers mean there is still much more we need to do to continue on the path to recovery,” said a senior administration official with US President Barack Obama, who is vacationing in Massachusetts.

The Federal Open Market Committee “is prepared to provide additional monetary accommodation through unconventional measures if it proves necessary, especially if the outlook were to deteriorate significantly,” Bernanke said.

It was his strongest signal yet that the central bank could resume massive purchases of longer-term debt if the economy worsened, adding to the Federal Reserve’s already bloated balance sheet.

Speaking at an annual central bank gathering in Jackson Hole, Wyoming, Bernanke said the Fed had adequate weapons in its arsenal to jolt the economy from any sharp slowdown, brushing off criticism by some analysts that it has been pushed to a corner.

“The issue at this stage is not whether we have the tools to help support economic activity and guard against disinflation,” he said. “We do ...”

“The issue is instead whether, at any given juncture, the benefits of each tool, in terms of additional stimulus, outweigh the associated costs or risks of using the tool,” he said.

The Fed has already pumped hundreds of billions of dollars into the economy since a home mortgage meltdown triggered the worst financial crisis in decades and plunged the economy into recession in December 2007.

The central bank has also slashed interest rates to virtually zero to spur growth, which spurted late last year before staggering again.

Bernanke’s assurances in his closely watched speech helped assuage market concerns.

Wall Street shares rebounded after sliding mostly this week, with the blue-chip Dow index jumping 164.84 points or 1.65 percent to 10,150.65, rebounding from Thursday’s close below the 10,000 psychological threshold.

While acknowledging that growth and employment were slowing to levels not expected by the central bank, Bernanke was careful to rule out the possibility of the world’s largest economy slipping back into recession.

“I expect the economy to continue to expand in the second half of this year, albeit at a relatively modest pace,” he said.

Most recent economic data fell below already modest expectations and economists are reducing their growth forecast for the third quarter, with some warning of a “double-dip” recession.

New home sales plunged to the lowest levels in half a century and the pace of orders for goods indicated the manufacturing sector slowed markedly, with business capital spending contracting massively.

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