Ben S. Bernanke, Federal Reserve Chairman on Friday said that the central bank is ready to act for the U.S. economic recovery efforts. The assurances he made at the Kansas City Fed’s symposium near Jackson Hole, Wyo., highlights not only the uncertainty of the economy, but also the futility of trusting policymakers to solve all our problems.
The Federal Open Market Committee ultimately decided to reinvest proceeds from its $2 trillion of mortgage holdings into the Treasury market to avoid an unwanted tightening of monetary policy just as the recovery proceeded at a weaker pace than previously anticipated. The minutes showed the Fed could take further steps to stimulate the economy if needed, including reinvesting in mortgages in the future.
The Wall Street Journal and other news outlets reported last weekend the country’s gross domestic product grew 1.6 percent in the second quarter, even though the Department of Commerce had been estimating a 2.4 percent increase. Besides the lacking GDP, home sales are dropping, and there are signs consumer spending is decreasing. The future of employment is also gloomy.
While the Fed eventually reached a consensus on the decision to reinvest the proceeds to keep interest rates low, the Aug. 10 policy-setting meeting has been described as one of the most contentious under the chairmanship of Ben Bernanke.
Bernanke said he doesn’t believe the economy will continue to falter, but if it does, the Federal Reserve stands ready to buy Treasury securities, which could stimulate the economy and lower long-term interest rates.
The Fed has already cut interests rates to the lowest levels on record to combat the Great Recession, the central bank has a limited basket of tools left at its disposal to encourage growth and fight off the threat of deflation, which is a widespread drop in prices.
“For a sustained expansion to take hold, growth in private final demand–notably, consumer spending and business fixed investment–must ultimately take the lead. On the whole, in the United States, that critical handoff appears to be under way,” Bernanke said.