Federal Reserve Chairman Ben S. Bernanke said Friday that the U.S. central bank “will do all that it can” to ensure a continuation of the economic recovery and said more securities purchases may be warranted if growth slows.
The Federal Open Market Committee “is prepared to provide additional monetary accommodation through unconventional measures if it proves necessary, especially if the outlook were to deteriorate significantly,” the Fed chairman said in opening remarks to central bankers from around the world at the Kansas City Fed’s annual monetary symposium held in Jackson Hole, Wyo.
Stocks advanced and Treasuries declined after Bernanke’s comments. The Dow Jones industrial average rose 1.65% from Thursday’s close, while the S&P 500 was up 1.66% and the Nasdaq climbed about 1.65%. The yield on the 10-year Treasury note climbed to 2.65% from 2.48% late Thursday. All numbers are preliminary.
The Fed chairman gave a detailed analysis of the economy at the symposium and said growth during the past year has been “too slow” and unemployment too high. Still, he said a handoff from fiscal stimulus and inventory restocking to consumer spending and business investment “appears to be under way.” He also said the “preconditions” for a pickup in growth in 2011 “appear to remain in place.”
Mr. Bernanke said the risk of an “undesirable rise in inflation or of significant further disinflation seems low.” He said the Fed has several tools if prices decelerate or job growth stagnates, including shifting the composition of its bond reinvestment strategy.
Federal Reserve officials put their exit strategy on hold this month and decided to purchase Treasury securities to keep their portfolio from shrinking as their mortgage bonds mature. Economists at Goldman Sachs Group and J.P. Morgan Chase said the Fed could boost monetary stimulus if the economy continues to deteriorate.
“The FOMC’s recent decision to stabilize the Federal Reserve’s securities holdings should promote financial conditions supportive of recovery,” Mr. Bernanke said. “Additional purchases of longer-term securities, should the FOMC choose to undertake them, would be effective in further easing financial conditions.”