The Federal Reserve stands ready to offer additional monetary support to a U.S. economy that has slowed significantly in recent months, Fed Chairman Ben Bernanke told lawmakers on Tuesday (July 17).
Reuters reported that Bernanke told the Senate Banking Committee the recovery was being held back by tighter financial conditions due to Europe’s debt crisis and uncertainty surrounding U.S. fiscal policy.
Financial markets had looked forward to Bernanke’s testimony for any signs the central bank was moving closer to a third round of bond purchases to support the economy. But the Fed chief hewed closely to the message of watchful waiting that the central bank’s policy panel delivered in June, and yielded few new clues.
“Reflecting its concerns about the slow pace of progress in reducing unemployment and the downside risks to economic growth, the committee made clear at its June meeting that it is prepared to take further action,” Bernanke said in his prepared remarks on the Fed’s semi-annual monetary policy report.
The Fed has held overnight borrowing costs near zero since December 2008 and has bought $2.3 trillion in government and mortgage-related debt in an effort to push long-term interest rates lower.
As the recovery faltered, it has promised to hold rates at rock bottom levels until at least last 2014 and has extended the average maturity of bonds in its portfolio in a further effort to depress long-term borrowing costs.
Despite the Fed’s support, the economy is growing too slowly to lower unemployment. U.S. gross domestic product expanded at a tepid 1.9% annual rate in the first quarter, and economists think its second quarter performance was even weaker.
Bernanke told lawmakers recent deterioration in the labor market suggests the nation’s 8.2% jobless rate will come down all too gradually, admitting for the first time that the softness could not be explained away by purely seasonal factors.