(Bloomberg News) Federal Reserve Chairman Ben S. Bernanke said additional asset purchases are an option as policy makers consider further steps to bring down an unemployment rate exceeding 8 percent that he called a "grave concern."
"The costs of nontraditional policies, when considered carefully, appear manageable, implying that we should not rule out the further use of such policies if economic conditions warrant," Bernanke said today in a speech to central bankers and economists at an annual forum in Jackson Hole, Wyoming.
Bernanke, speaking two weeks before the next meeting of the Federal Open Market Committee, repeated its last statement that the central bank "will provide additional policy accommodation as needed" to spur growth. Two rounds of large-scale asset purchases totaling $2.3 trillion have so far failed to reduce the jobless rate below 8 percent more than three years into the recovery.
"We have seen no net
improvement in the unemployment rate since January," Bernanke told central
bankers and economists in the audience, according to a text of his remarks
released in Washington. "Unless the economy begins to grow more quickly than it
has recently, the unemployment rate is likely to remain far above levels
consistent with maximum employment for some time."
"Given Bernanke's remarks, additional monetary stimulus seems more likely than it did," said Mark Vitner, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina. "It is not 100 percent, and the timing is an even greater question."
Bernanke's 24-page speech at the Kansas City Fed's symposium reviewed the Fed's policy actions through the financial crisis and use of nontraditional policy tools such as communication and outright bond purchases, concluding that they have been effective in boosting growth and improving financial conditions. He said further declines in unemployment depend on a pickup in economic growth above its longer term trend.
The Fed chairman said long periods of high unemployment produce "enormous suffering and waste of human talent" and also risk causing "structural damage on our economy that could last for many years."
Policy makers at their Aug. 1 meeting were moving toward additional action, according to minutes released last week. Many members of the panel said more stimulus will be needed "fairly soon" unless the recovery shows signs of a "substantial and sustainable strengthening."
Since the August meeting, data on housing, manufacturing and retail sales have exceeded expectations.
Retail sales rose 0.8 percent in July, the most in five months, and sales of existing homes rose from an eight-month low. Consumers increased spending for the first time in three months, government data showed yesterday, and retailers such as Gap Inc. and Macy's Inc. posted same-store sales this month that topped analysts' estimates.
The Standard & Poor's 500 Index has climbed 11 percent this year as company earnings beat forecasts and investors speculated that the Fed will take steps to support the expansion. About 71 percent of companies in the index reported results that exceeded analysts' estimates, according to data compiled by Bloomberg.
Cooling growth leaves the world's biggest economy more vulnerable to fallout from the debt crisis in Europe and the so- called fiscal cliff in the U.S., the $600 billion of tax increases and spending cuts that will take effect automatically at the end of the year unless Congress acts.
Budget cuts at all levels of government have "become an important headwind for the pace of economic growth," Bernanke said today. In addition, "a major source of financial strains has been uncertainty about developments in Europe."
The minutes of their last meeting showed policy makers considered extending the time horizon the Fed expects to keep its benchmark interest rate low.
Since January, the Fed has said economic conditions would likely warrant keeping the rate "exceptionally low" through at least late 2014. The rate has been kept close to zero since December 2008.