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JACKSON HOLE, Wyo. (AP) — Federal Reserve Chairman Ben Bernanke
leaned on Congress on Friday to do more to promote hiring and
growth, or risk delaying the economy’s return to full
health.
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Bernanke proposed no new steps by the Fed to boost the economy. But
at a time when Congress has been focused on shrinking long-run
budget deficits, he warned lawmakers not to “disregard the
fragility of the current economic recovery.”
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Bernanke, who spoke at an annual economic conference in Jackson
Hole, left open the possibility that the Fed will take further
steps to strengthen the economy. He said its September policy
meeting will be held over two days, instead of just one, to allow
for a “fuller discussion.”
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But analysts said the speech provided no assurances of any new help
from the Fed.
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“He appears to be saying that the Fed has largely played its part
and that the politicians need to step up their game,” said Paul
Dales, senior U.S. economist at Capital Economics.
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Stocks fell after the speech was released but then recovered. The
Dow Jones industrial average rose about 150 points in
early-afternoon trading as traders responded to Bernanke’s judgment
that the job market and the economy would return to full health in
the long run.
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Bernanke’s speech followed news that the economy grew more slowly
in the April-June quarter than previously estimated – a meager 1
percent annual rate.
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Some economists worry that Europe’s financial crisis, along with
persistently weak U.S. job growth and falling home prices, could
tip the economy into another recession. Those fears have pulled
down stock prices in the past month. The Dow has lost 12 percent of
its value since late July.
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The sell-off on Wall Street was triggered Congress’s battle over
raising the debt ceiling. In his speech, Bernanke criticized
lawmakers for their handling of the issue and warned that further
standoffs could hurt the economy in the long run.
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A plan Congress passed this month means annual deficits are
expected to be reduced by $3.3 trillion over the next decade
through spending cuts.
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The Fed chairman said long-term deficit reduction is necessary. But
he said that future economic health could be jeopardized if hiring
and growth are not strengthened now.
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Analysts noted the lack of new proposals in Bernanke’s
speech.
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But Aneta Markowska, senior U.S. economist at Societe Generale,
said the extension of the Fed’s September meeting to two days might
suggest something new could be unveiled.
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Many have looked with anticipation to the Fed to do more. It has
already kept short-term interest rates near zero for 2 1/2 years.
And earlier this month, it said it would keep them there through
mid-2013.
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“I’m a little fearful that there are a lot of expectations built in
that I don’t think Bernanke can deliver on,” said Jack Ablin, chief
investment officer at Harris Private Bank.
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To promote growth, Bernanke said the government must pursue tax,
trade, and regulatory policies that encourage economic
health.
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The approach of this year’s Jackson Hole conference raised
expectations. In last year’s speech, Bernanke signaled that the Fed
might unveil a Treasury-buying plan to help lower long-term rates.
In November, the Fed announced a $600 billion such program. The
bond purchases were intended to lower long-term rates, lift stock
prices and spur more spending.
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Immediately afterward, stock prices started rising and continued up
until May, when they leveled out.
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Still, critics, from congressional Republicans to some Fed
officials, have raised concerns that the Fed’s Treasury purchases
could ignite inflation and speculative buying on Wall Street, while
doing little to aid the economy.
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Others have wondered whether any further lowering of long-term
rates is needed. Investors seeking the safety of U.S. debt have
forced down the yield on the 10-year Treasury note to 2.19 percent
– a full point lower than it was when the Fed completed its
Treasury purchases about two months ago. Yet the economy is still
sputtering.
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The Congressional Budget Office this week estimated that the
unemployment rate will hover around 8.5 percent when President
Barack Obama seeks re-election next year. And it predicts that
unemployment will stay above 8 percent through 2013.
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That continued weakness is why many speculated that the Fed would
still embark on some new plan to help the economy. They note that
while inflation has risen, it’s still within the Fed’s target
range.
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At their meeting earlier this month, Bernanke said policymakers
discussed the “relative merits and costs” of further steps to spur
growth. Clues to where the Fed is leaning might be found in those
meeting’s minutes, which will be released Tuesday.
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“There could be more action, but we’re in treacherous waters right
now,” said John Silvia, Wells Fargo’s chief economist. “What he’s
doing is making small moves.”
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Many economists note, however, that the economy’s main problem is
not that interest rates are too high. They say the main problem is
that consumer spending remains too weak. So businesses feel little
incentive to hire, expand and invest.
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Until demand for goods and services steps up, the Fed may have
limited ability to strengthen the economy.
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Joshua Shapiro, an economist at MFR Inc., said that by dwelling on
budget and tax issues facing Congress, Bernanke was conceding that
the Fed has “basically exhausted its tools.”
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—
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Crutsinger reported from Washington. AP Business Writers Daniel
Wagner, Derek Kravitz and Christopher S. Rugaber contributed to
this report.
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