Federal Reserve Chairman Ben Bernanke announced on Thursday afternoon that the central bank is prepared to implement “tools” for economic stimulus this month. Possibly waiting for the President Barack Obama’s economy speech later that evening, the Chairman was vague about measures that may be taken.
“In addition to refining our forward guidance, the Federal Reserve has a range of tools that could be used to provide additional monetary stimulus. We discussed the relative merits and costs of such tools at our August meeting. My FOMC (Federal Open Market Committee) colleagues and I will continue to consider those and other pertinent issues, including, of course, economic and financial developments, at our meeting in September and are prepared to employ these tools as appropriate to promote a stronger economic recovery in a context of price stability,” Bernanke said during his speech.
The Chairman said that he and members of the Federal Open Market Committee (FOMC) expect moderate economic growth in coming months, but will provide further “forward guidance” to stimulate the economy. Bernanke said that recessions such as the current one have traditionally ended with very little government intervention, but that the current recession is an extraordinary circumstance.
“Why has this recovery been so slow and erratic? Historically, recessions have tended to sow the seeds of their own recoveries as reduced spending on investment, housing, and consumer durables generates pent-up demand,” Bernanke said.
He believes that while it is “far less robust than was expected,” recovery is taking place.
“These restorative forces are at work today, and they will continue to promote recovery over time. Unfortunately, the recession, besides being extraordinarily severe as well as global in scope, was also unusual in being associated with both a very deep slump in the housing market and a historic financial crisis. These two features of the downturn, individually and in combination, have acted to slow the natural recovery process,” he said.
Bernanke also said that his team expects inflation to level out after having reached historically high rates over the past several months.
“…[I]nflation is expected to moderate in the coming quarters as these transitory influences wane. In particular, the prices of oil and many other commodities have either leveled off or have come down from their highs. Meanwhile, the step-up in automobile production should reduce pressure on car prices. Importantly, we see little indication that the higher rate of inflation experienced so far this year has become ingrained in the economy,” he said.
The Federal Reserve speech came hours before Obama’s expected announcement of measures to grow jobs through massive public works projects.