Policy fights anathema to U.S. recovery

WASHINGTON — Federal Reserve Chairman Ben S. Bernanke, while insisting that the long-term U.S. economic prospects remain good, took aim at Washington, D.C., policymakers for causing upheaval in financial markets and failing to do their part in bolstering the flagging recovery.

Bernanke did not rule out new action by the central bank to stimulate growth, but he emphasized that the Fed could do only so much by manipulating interest rates and other monetary policy. And, in a much-anticipated speech Friday, he virtually goaded the White House and Congress to do more to create jobs and strengthen the economy using fiscal policy — which would encompass federal spending, tax cuts and other such measures.

While it is important to reduce the nation's deficits over time, he said — in usually blunt language for a central bank leader — it would be a mistake to "disregard the fragility of the current economic recovery" and create "fiscal headwinds," a reference to short-term spending cuts at a time of immediate economic needs.

Bernanke's speech was taken by some analysts as a sign that the Fed was prepared to provide new monetary stimulus, possibly as early as its next policymaking meeting in late September.

"He basically punted until then," said Cornelius Hurley, a Boston University professor and a former assistant general counsel at the Fed.

Rep. Brad Sherman, D-Calif., said Bernanke would probably have to take some action because no major fiscal stimulus was likely to come out of the deeply divided Congress and a "political system that is mostly broken."

Bernanke spoke at an annual Fed conference in Jackson Hole, Wyo., shortly after the government released a report that revised downward the second-quarter economic growth to a meager annual rate of 1 percent from 1.3 percent.

Share This Story