Fed Ready to Add More Stimulus If Needed

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Federal Reserve Chairman Ben Bernanke said Wednesday that the central bank is prepared to provide additional stimulus if the current economic lull persists.

Delivering his twice-a-year economic report to Congress, Bernanke laid out three options the central bank would consider.

Bernanke said the Fed could launch another round of Treasury bond buying, the third such effort since 2009. It could cut the interest paid to banks on the reserves they hold as a way to encourage them to lend more.

The Fed could also be more explicit in spelling out just how long it planned to keep rates at record-low levels. That would give investors confidence about the Fed's efforts to continue supporting the economy.

Stocks jumped after Bernanke signaled the Fed's willingness to take more steps to boost the sluggish economy. The Dow Jones industrial average rose 139 points in early-morning trading and broader indexes gained.

Bernanke maintained that temporary factors, such as high food and gas prices, have slowed the economy. He said those factors should ease in the second half of the year and growth should pick up. But if that forecast proves wrong, he said the Fed is prepared to do more.

"The possibility remains that the recent economic weakness may prove more persistent than expected and that deflationary risks might reemerge, implying a need for additional policy support," Bernanke told the House Financial Services Committee on the first of two days of Capitol Hill testimony.

Bernanke also said it was possible that inflationary pressures spurred by higher energy and food prices may end up being more persistent than the Fed anticipates. He said that the central bank would be prepared to start raising interest rates faster than currently contemplated, if prices don't moderate.

Bernanke's comments about inflation spoke to concerns expressed by some regional bank presidents at the Fed. The have criticized the Fed's bond-buying program, saying it has increased the risk for higher inflation.

The Fed has kept its key interest rate at a record low near zero since December 2008. Most private economists believe the Fed will not start raising interest rates until next summer. And some say the Fed won't increase rates until 2013, based on the slumping economy.

Bernanke was testifying after the government released a dismal jobs report last week.

The economy added just 18,000 jobs last month, the fewest in nine months. And the May figures were revised downward to show just 25,000 jobs added - fewer than half of what was initially reported. The unemployment rose to 9.2 percent, the highest rate this year.

Companies pulled back sharply on hiring after adding an average of 215,000 jobs per month from February through April. The economy typically needs to add 125,000 jobs per month just to keep up wiht population growth. And at least twice that many jobs are needed to bring down the unemployment rate.

At the June meeting, the central bank lowered its economic growth forecast for the second half of the year and said unemployment wouldn't fall below 8.6 percent this year.

The Fed also agreed at that meeting to end on schedule its program to boost the economy through the purchase of $600 billion in Treasury bonds.

The bond-buying program was the Fed's second round of "quantitative easing." That's a term economists use for a tool the Fed can use to drive down long-term interest rates by purchasing Treasury bonds.

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cherrybls6

don't know about anybody else but eight percent unemployment sounds really low to me. that's like saying 8 out of 100 people dont work. twenty or thirty percent sounds kinda high. if anybody needs my address when stimulus checks go out----

July 19 2011 at 1:56 PM Report abuse rate up rate down Reply
krzystonalex

Why can’t the Federal Reserve tear-up/ forgive the Federal bonds that it purchased in QE1 and QE2?

That would reduce the National Debt. It has been done many times for developing countries. The only impact would be higher inflation and the Fed is concerned about Deflation.

July 15 2011 at 7:16 PM Report abuse rate up rate down Reply
mikerehfel

This is how it's gonna be, there's 1 for you 19 for me, cause I'm the taxman!

July 14 2011 at 7:02 AM Report abuse rate up rate down Reply
DDerr

And Bernanke - You have a lot of nerve even showing your stupid face. BERNANKE HAS NOT BEEN RIGHT ON ONE ASSESSMENT, NOR ON ONE PREDICTION! And you are going to let this clueless banking bastard tell us what our country needs?
Folks, get rid of Bernanke and all his friends at the Federal Reserve. They are nothing but conniving criminals.

July 13 2011 at 4:39 PM Report abuse +1 rate up rate down Reply
DDerr

HA HA More Stimulus? Ohhhh the Federal Reserve is just FUNNY! Doesnt everyone know that the Federal Reserv e and banks are the reason we are in this financial black hole? Yup! If Bush and Obama couldnt just have the ol Federal reserve print up money to pay for things like wars, bailouts, tax rebates... well.. THEY WOULDNT HAVE THE MONEY! And if banks could only loan the money they have... They wouldnt have pushed all these screwed up home re-financing packages... you know... the ones that have lots of America upside down and bankrupt?

And yet, the FEDERAL RESERVE acts like some benevolent bunch of Jewish Geniuses who over see our economy and keep it running right! Oh the nerve~! People, start voting out your government until we get someone with common sense, who will abolish the Federal Reserve and get us back to the great advice in the Constitution... among which is the claiuse "Only the US Federal Government shall have the right to coin money"... NOT THE BUNCH OF THEIVING BANKERS KNOWN AS THE FEDERAL RESERVE!
FOOTNOTE: The Federal Reserve has sucked out Billions if not Trillions right out of your tax dollar. HOW? Why they printed up money to loan to our idiot government, THEN.... CHARGED THE AMERICAN PEOPLE INTEREST ON IT! ELIMINATE THE FEDERAL RESERVE FOR GOSH SAKES. Clinton had us ready to trash the bastards.

July 13 2011 at 4:37 PM Report abuse rate up rate down Reply
mbzmc

Dear Mr Berneke,
Please go back to school. Really, go back to teaching. You are absolutely wrong in today's world economy if you think that by raising interest rates you will get food and oil prices to go down. I am a manufacturer of food products. Prices are very high and going higher almost daily. The U.S. now competes with China and India for food products. China and India get whatever they want first, that is true for U.S. grown and produced products and imported products. The rest of the world is easier to deal with, that is the U.S. has too many regulations and rules and restrictions so U.S. companies and foriegn companies would rather sell their products to everyone else first-yes, whatever is left is for the U.S. Wake up, high prices do not bring down demand today. That's old school thinking when the dollar was still worth something and China and Indian we not so developed and before you and Greenspand and Obama destroyed it. Now, a higher dollar would reduce the costs of food and energy to the U.S. people. Yes, you're right, a higher dollar would mean your big company friends might make a few billion dollars less because of a stronger dollar but I don't think many Americans would shed a tear over that. The most important thing is no QE3-just please go back to school.

July 13 2011 at 3:48 PM Report abuse +2 rate up rate down Reply
Joshua Gayman

u cant pay bills with money u dont have. increasing taxes wont help either(see history)-I predict they will raise the debt ceiling. either way, whether we see higher taxes and a raised debt ceiling, or simply a default on debts which would lead to a worldwide sell-off of dollars, the result is a higher cost of living for all and a more diminished quality of life..the root of the problem is our money!(it's not real)

http://joshuagamen.com/2011/07/13/obama-vs-gop-debt-ceiling-showdown-continues-stay-tuned-for-inflation/

July 13 2011 at 3:29 PM Report abuse +2 rate up rate down Reply
1 reply to Joshua Gayman's comment
bggdg

The most likely outcome is an increased debt ceiling without higher taxes. But the important part here is that a failure to raise the debt ceiling is NOT analagous to a default. In fact, federal debt service in round numbers is roughl.y $200 billion/year. This is less than 10% of federal receipts. What this means is that the government could refrain from rasing the debt limit, while avoiding a default, and STILL have an ADDITIONAL $2 TRILLION to spend. One thing you can be absolutely certian of is that there will be no default.

July 13 2011 at 3:57 PM Report abuse +1 rate up rate down Reply
1 reply to bggdg's comment
bggdg

No, the component of federal expenditures consumed by debt service is $200 billion/YEAR (in round numbers).

July 13 2011 at 4:31 PM Report abuse +1 rate up rate down
bggdg

The headline would have made just as much sense had it read, "Fed Ready to Plunge Ice Pik in Skull if Needed"

July 13 2011 at 3:04 PM Report abuse +2 rate up rate down Reply
1 reply to bggdg's comment
bggdg

The "if Needed" part being particularly entertaining.

July 13 2011 at 3:06 PM Report abuse rate up rate down Reply
glasses60

The Fed will keep printing money. This will continue the devaluation of our dollar. It will soon be in line with Mexican
Peso. Our money used to be welcome all over the world. Not any more. It's doesn't get you much in exchange for the Pound or the Euro.

July 13 2011 at 1:24 PM Report abuse +3 rate up rate down Reply
bggdg

If the first two rounds of "stimulus" falied to "stimulate", was it really a "stimulus"? Or just another government blunder cloaked in "stimulus" rhetoric to appeal to the intellectually defenseless component of society?

July 13 2011 at 1:23 PM Report abuse +3 rate up rate down Reply