US Federal Reserve Chairman Ben Bernanke on Friday left the door wide open to a further easing of monetary policy, saying the stagnation in the US labor market was a “grave concern,” but he stopped short of providing a clear signal of imminent action.
His stark language gave a temporary lift to US stocks, but economists walked away from the Fed chairman’s remarks still divided over whether the central bank would launch a fresh round of bond purchases at its upcoming meeting this month.
Bernanke said the Fed had to weigh the costs as well as the benefits of more monetary stimulus, although he hinted the costs were likely worthwhile.
“As we assess the benefits and costs of alternative policy approaches ... we must not lose sight of the daunting economic challenges that confront our nation,” Bernanke said at the Kansas City Fed’s annual Jackson Hole symposium.
“Taking due account of the uncertainties and limits of its policy tools, 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,” he said.
That was a somewhat weaker hint of policy easing than the minutes of the Fed’s last policy meeting had delivered, but Bernanke’s dour economic assessment left few doubts where his sympathy lay.
“The stagnation of the labor market in particular is a grave concern not only because of the enormous suffering and waste of human talent it entails, but also because persistently high levels of unemployment will wreak structural damage on our economy that could last for many years,” Bernanke said.
Financial markets see-sawed in the wake of Bernanke’s comments. US stocks closed roughly where they were before Bernanke spoke, but yields on US government bonds hit a three-week low in anticipation of Fed action and the US dollar fell against both the euro and the yen.
In response to the financial crisis and recession from 2007 to 2009, the Fed cut overnight interest rates to near zero and bought US$2.3 trillion in government and mortgage securities in two separate rounds of so-called quantitative easing.
It next meets on Sept. 12 and Sept. 13, and policymakers have been locked in debate over whether further bond purchases are warranted to spur a stronger recovery.
Economists said Bernanke’s emphasis on the health of the job market throws an especially strong spotlight on a report due on Saturday on job growth last month. Hiring picked up in July but the jobless rate moved up to 8.3 percent.
“The speech did not add anything to the information that we had, but, importantly, it did not subtract anything either,” said Roberto Perli, managing director of policy research at the International Strategy and Investment Group in Washington. “It did not walk back an inch from the fairly dovish tone of the minutes,” he said, adding that it was “probably more a question of when, not if” on further asset purchases.