WASHINGTON — Federal Reserve Chairman Ben Bernanke signaled Wednesday that no moves were imminent to bolster the recovery despite a “somewhat weaker outlook” for the economy.
In his semiannual monetary-policy testimony to the Senate Banking Committee, the Fed chief assured that the central bank would remain flexible in light of the “unusually uncertain” economic outlook.
“If the recovery seems to be faltering, then we will at least need to review our options,” Bernanke said.
But he said there were no plans to consider such moves in the near term.
Markets reacted with disappointment to the lack of urgency in Bernanke’s remarks, sending stocks lower Wednesday.
Some lawmakers disagreed with Banking Committee chairman Christopher Dodd, D-Conn., asking what more the Fed can do to expand output and employment.
“It looks like our economy is in need of additional help,” Dodd said in his opening remarks.
When pressed on what more the Fed could do, Bernanke said potential options include changing the language of the policy statement, lowering the interest rate the Fed pays on reserves that banks hold at the central bank, or increasing the size of its balance sheet once again, he said. The central bank could either reinvest maturing securities or buy more, he said.
“We have not come to the point where we can tell you precisely what the leading options are,” said Bernanke, noting that each would entail drawbacks and costs.
Some of those options have the potential to be effective, he said.
Fed officials downgraded their economic forecasts at last month’s monetary-policy meeting in the face of weakening consumer spending and labor-market conditions, as well as concerns about a spillover from the European debt troubles. The economy is now expected to expand between 3 percent and 3.5 percent in 2010, down from an April estimate of 3.2 percent to 3.7 percent growth.
A few officials see a growing threat of deflation, minutes from the June 22-23 meeting showed, though Bernanke made no mention of that risk.
Asked about the prospects of a double dip in the U.S. economy, Bernanke said there are “some risks” but that the central bank continues to expect a moderate recovery. Private demand should help offset the impact of waning fiscal stimulus and a slowdown in inventory buildup, he said.
Downside risks include tight credit conditions, especially for small businesses, as well as stubbornly high unemployment, according to Bernanke.
While overall inflation has been volatile, core prices have trended lower over the past two years, he said.
