Ben BernankeFederal Reserve Chairman Ben Bernanke on Friday paved the way for a second-round of so-called quantitative easing, saying the central bank is prepared to undertake another round of extraordinary measures -- such as buying up long-term debt -- should the prognosis for the economy get worse.

Bernanke's stimulating remarks dovetailed nicely with Friday's revised figure for second-quarter gross domestic product, which was cut to a 1.6% annualized growth rate from an initial estimate of 2.4%. The good news is that the latest reading was better than economists and the market were expecting. The bad news is that the economy isn't growing fast enough to make a dent in perniciously high joblessness. More worrisome is that the economy could slow or even stall at such depressed levels.

The Federal Open Market Committee (FOMC), which sets interest-rate policy, "is prepared to provide additional monetary accommodation through unconventional measures if it proves necessary, especially if the outlook were to deteriorate significantly," Bernanke read from prepared remarks at the Fed system's annual symposium in Jackson, Wyo.

The stock market responded positively to the GDP and Fed policy news, with the blue-chip Dow Jones Industrial Average ($INDU) jumping more than 100 points in midday trading. Bonds declined on the news, as the yield on the benchmark 10-Year Treasury note rose to 2.61% after trading as low as 2.42% Thursday. (Yields and prices move in opposite directions.)

Although Bernanke said the Fed continues to expect economic recovery through 2011 and beyond (which would eliminate the need for special measures), it remains willing to do whatever is necessary in case its forecast is wrong. Among the policy actions outlined by the Fed chief were buying up long-term securities and cutting the interest rate banks receive on reserves they hold in the Federal Reserve system.

As to what the Fed would actually do and when, Bernanke said the FOMC "has not agreed on specific criteria or triggers for further action," but is keeping a keen eye on the dreaded prospect of deflation.

"The FOMC will strongly resist deviations from price stability in the downward direction," Bernanke said. "Falling into deflation is not a significant risk for the United States at this time," the Fed chief added, but that's partly true because the public understands that the central bank remains vigilant in attacking the threat.

"Regardless of the risks of deflation, the FOMC will do all that it can to ensure continuation of the economic recovery," Bernanke said.

Increase your money and finance knowledge from home

What are Penny Stocks

The lucrative and dangerous world of penny stocks.

View Course »

Asset Allocation

Learn the most important step in structuring an investment portfolio.

View Course »

Add a Comment

*0 / 3000 Character Maximum

42 Comments

Filter by:
Mark

There is a stimulus plan that will actually work! The "One - Year Mortgage Holiday" 9 Point Stimulus Plan as fully detailed at www.saveoureconomy.com is the silver bullet solution to solve the current housing, credit, banking, financial crises, that will immediately jump start our economy, create millions of new Jobs, stimulate growth and generate long term economic prosperity through out America! The Mortgage Holiday Plan is the bold, ingenious ultimate "Trickle Up" stimulus plan that will help all home owners, renters and small/medium businesses that will actually work to stabilize the housing market and get America's economic wheel of commerce rolling again, which will also help balance the Federal budget and help start reducing the National Debt, which will strengthen the American dollar. The Mortgage Holiday is a fair and balanced legitimate stimulus plan, Of, By and For the People, Main Street that empowers We The People, allowing us to have a well deserved one year time out from making our monthly mortgage payment, so that we can decide how best to save, spend & invest our own money. Renters of apartments, office & retail space will also receive a monthly savings and partial rebate in rent. If you should agree with the merits of the Mortgage Holiday plan, then we urge you to contact your Representative, Senator and the White House to encourage them to support the "One - Year Mortgage Holiday" 9 Point Stimulus Plan, that is supported by a majority of American's across the country, that actually take the time to simply read the Plan at www.saveoureconomy.com!

September 01 2010 at 8:53 AM Report abuse rate up rate down Reply
otterdad48

I am fairly sure that Ben Bernanke means well but supplying capitalists with capital even at 0% interest had not translated into jobs. Capital, you see, accumulates capital; it does not disburse capital. The myth of supply side prosperity has been busted. What we need is another WPA or a change in short term capital gains that discourages the hoarding of capital and encourages the creation of large payrolls here in America. What we need a market that promotes investing and not one that works like a big casino.

August 29 2010 at 12:50 PM Report abuse rate up rate down Reply
ultraz2

In the USA THERE IS LIMITED PRODUCT DEMAND ,yet a suffiecient supply to keep inflation in check. A further cut in all intrest rates is in order to stimulate the economy as banks continue to rip off customers with 20 to 35% overdraft rip off intrest rates and teaser bait and switch rip off intrest rates. If you are a hard working taxpaying middle class american voter and you don't need it don't charge it and buy it. Don't let the banks take advantage of your family and rip you and your family off with high absurd stick it up your butts intrest rates. Protect your family don't buy what you really don't need.

August 28 2010 at 6:47 PM Report abuse +1 rate up rate down Reply
prognesub

The Fed will continue to print cash for the banksters until the end of time. I just get tired of wealthy right wing-nuts bitching about socialism when their grubby little hands are the ones always out there for bail-out cash.

August 28 2010 at 3:05 PM Report abuse +2 rate up rate down Reply
richperry05

liar-----the fed is one of the main reasons our economy is in the shhitter, this guy may be a genious, but does not know reality, he is to far out there

August 28 2010 at 1:00 PM Report abuse +3 rate up rate down Reply
stankoskii

I truly believe that the government will do what it can to make this go away. I have set up a place that the poor and middle class in the country can start to get their fair share of the giveaways. It is our turn to have a piece of the action. Just Goooogle CASH..TEACHER and click on the very first link! Then you will find the ways to cash in. Go to the PENNY STOCKS section to see things that the corporate fat cats don't want us to know.

August 28 2010 at 10:35 AM Report abuse rate up rate down Reply
otterdad48

The Fed has done an excellent jobs of making sure that the banksters did not have to take a hit on all of the unsustainable subprime loans that they made into the bubble. The Fed is well equipped to make sure that even the most incompetent bankers thrive while the economy withers. Does anyone remember the righties screaming about hyper inflation? Well the Fed is loaning the banks cash for next to nothing but that money is not making it into the economy. It is propping up the banks who refuse to to readjust the mortages they hold to actual market value. The individuals who are trying to keep their homes are the ones losing out as well as the greater economy because as we all know so painfully well capitalists hold onto the captial that they acquire and do not create jobs with it.

August 28 2010 at 8:40 AM Report abuse +2 rate up rate down Reply
otterdad48

Three words: Works Progress Administration. It worked before perhaps it is time to try it again.

August 28 2010 at 8:32 AM Report abuse +2 rate up rate down Reply
kmbw106

Contrary to what Bernake says, interest rates need to be at a minimum of 6%. If Americans ran their households like the polititians run the government, we'd all be in deep dodo.

August 28 2010 at 8:15 AM Report abuse +3 rate up rate down Reply
rslpilot

"...extraordiary measures..."???? From the very people who brought about this global mess???? We are in deadly serious trouble. The "Greatest" Depression has officially begun. God help us all.

August 28 2010 at 1:21 AM Report abuse +5 rate up rate down Reply