JACKSON HOLE, Wyoming (MNI) - Federal Reserve Chairman Ben Bernanke Friday reiterated the Federal Open Market Committee's willingness to provide additional monetary accommodation if necessary, but gave no clear signal that action is upcoming.
In making an extensive evaluation of the potential benefits and costs of using the Fed's "nontraditional" policy tools, Bernanke seemed to put slightly greater weight on the benefits. But he emphasized the "uncertainties" involved in making further use of large scale asset purchases and other measures in an eagerly awaited keynote address opening the Kansas City Federal Reserve Bank's annual symposium.
Bernanke also stressed the limits of monetary policy, saying that by itself the Fed cannot overcome all the economy's ills in the absence of other kinds of economic policy. He seemed to have in mind particularly fiscal policy, which he identified as one of the major "headwinds" inhibiting economic growth.
Although the economy has improved in a number of areas, Bernanke said it is still "far from satisfactory."
Returning to the kind of Okun's Law observations he was making earlier in the year, Bernanke warned that unless the pace of economic growth accelerates there is likely to be little further progress in reducing unemployment.
And so the Fed chief clearly indicated a readiness to ease further -- either through asset purchases or changes in communication -- without giving any sense of the timing -- as a Sept. 12-13 FOMC meeting rapidly approaches and the Nov. 6 presidential election approaches.
Bernanke made no mention of the election.
While estimates of their effectiveness are uncertain, he said past asset purchases programs ("quantitative easing") have made the economy stronger than it otherwise would have been and said Q.E. "can continue to work."
In toto, the remarks are likely to be read as reinforcing the strong easing bias enunciated at the Aug. 1 FOMC meeting but not as a definite signal of impending action on Sept. 13.
Bernanke concluded by echoing the Aug. 1 FOMC statement, while adding a few qualifiers: "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."
After reviewing what the Fed has done since the outset of the financial crisis -- particularly the nontraditional policies it has adopted since reaching the zero lower bound for the federal funds rate -- the chairman said "It seems clear, based on this experience, that such policies can be effective, and that, in their absence, the 2007-09 recession would have been deeper and the current recovery would have been slower than has actually occurred."
Bernanke said "estimates of the effects of nontraditional policies on economic activity and inflation are uncertain, and the use of nontraditional policies involves costs beyond those generally associated with more-standard policies."
"Consequently, the bar for the use of nontraditional policies is higher than for traditional policies," he continued.
"In addition," he went on, "in the present context, nontraditional policies share the limitations of monetary policy more generally: Monetary policy cannot achieve by itself what a broader and more
balanced set of economic policies might achieve; in particular, it cannot neutralize the fiscal and financial risks that the country faces. It certainly cannot fine-tune economic outcomes."
"As we assess the benefits and costs of alternative policy approaches, though, we must not lose sight of the daunting economic challenges that confront our nation," he said. "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."
