Federal Reserve Board Chairman Ben S. Bernanke said the central bank has the ability to take additional steps to boost the economy.
"There is scope for further action by the Federal Reserve to ease financial conditions and strengthen the recovery," Bernanke said in a letter dated Aug. 22 to California Republican Darrell Issa, the chairman of the House Oversight and Government Reform Committee.
Bernanke repeated the statement from the Federal Open Market Committee's Aug. 1 meeting that the Fed will provide "additional accommodation as needed." He also reiterated earlier remarks to Congress that monetary policy "is not a panacea" and that other government policy makers could take steps to improve the economy.
The Fed chief said previous stimulus -- including the two rounds of quantitative easing in which the Fed purchased $2.3 trillion of securities -- have "helped to promote a stronger recovery than otherwise would have occurred, and to forestall the possibility of a slide into deflation."
The central bank's most recent balance-sheet program, known as Operation Twist, is "still working its way through the economic system," Bernanke said. Under the program, the Fed is swapping $667 billion of short-term securities for longer-term debt.
"Monetary policy changes typically take several quarters to achieve their full effect on economic activity," he said.