WASHINGTON (AP) — saying reserve Federal Chairman Ben Bernanke on Wednesday that the central bank is prepared to give a further boost to the economic lull persists.
That his twice-a-year economic report to Congress, Bernanke three options would consider that the central bank. One possibility, he said, was another of Treasury bond buying. It would make the third such effort since 2009.
Fed Chief insurance helped drive share prices higher, but it also highlighted the fragile state of the economy for more than two years after economists said the recession had ended. Unemployment has risen for three straight months and a debt crisis in Greece and other European countries are likely to weaken the global economy.
Bernanke warned U.S. regulators that their failure to raise its borrowing limit by Aug. 2 may trigger a major financial crisis. He said that the Government defaults on its debt, would throw the "shockwaves through the entire financial system".
Bernanke says more stimulus would only be necessary if economic conditions worsened and deflation was resurrected as a threat. Deflation is a destabilizing period of falling prices.
He also said that the Fed was nimble to react if the opposite happened. He said the Fed was ready to raise interest rates that were at record lows for nearly three years, the central bank fears a greater risk of inflation.
"We have to keep all options on the table," Bernanke told the House Financial Services Committee on the first of two days of Capitol Hill testimony. "If we come to the point where recovery is fragile" and inflation drops to zero, so the central bank would consider further incentive options, "he said.
The Dow Jones industrial average rose more than 93 points during afternoon trade. Broader indexes also rose.
In addition to buy government bonds, "said Bernanke the Fed could help the economy by:
— Cutting the interest paid to banks on the reserves they hold as a way to encourage them to lend more.
— Communicating more clearly seen how long it plans to keep rates at record low levels. It would give investors confidence that Fed efforts to continue to support the economy.
The Fed last month agreed to wind up the timetable of its programme to stimulate the economy through purchases of 600 billion dollars in Treasury bonds. But the central bank also acknowledged that the economy had slowed in the first half of the year. The result is lowered its economic growth forecast for 2011 and said unemployment would be less than 8.6% this year.
Since then, the Government reported a second straight month of gloomy rental in June. Economy to just 18,000 jobs last month, the fewest in nine months. Unemployment increased to 9.2% – the highest rate in years.
Companies withdrew heavily on rental after adding an average of 215,000 jobs per month from February to April. Economy often need to add 125 000 jobs per month just to keep pace with population growth. And at least twice that many jobs needed to reduce unemployment.
The Fed has said that temporary factors, such as high gas prices and supply chain disruptions caused by the crisis, Japan is jointly responsible for sluggish.
Bernanke says Fed believe Congress should facilitate these obstacles during the second half of the year. But if the forecast shows the error, he said that the Fed is prepared to do more.
"The possibility remains that the recent economic weakness may prove to be more persistent than expected and that deflationary risks can be revived, which implies a need for further political support," said Bernanke.
Economists noted that Bernanke was careful to balance the possibility for further Fed stimulus with the possibility that inflation could become a problem.
Paul Ashworth, U.S. Chief Economist at capital economics, said the Fed would likely agree on further steps unless deflation emerges as a threat again. Ashworth said a decision would not come until next year.
"The Fed to wait and see if the reduction in economic growth was due to temporary factors and if inflation falls back," said Ashworth.
The Fed started his final round of bond purchase by deflation worries increased. Bond purchase programme was Fed the second round of "quantitative easing". It is a term that economists used a tool the Fed can be used to bring down long-term interest rates by buying Government bonds.
The topic of new incentive was raised at the June meeting where Fed policymakers agreed to terminate the last programme. Some members said the Fed should be open to further action on growth failed to pick up enough to "meaningful" reducing unemployment, according to the minutes of the meeting of June 21-22.
Others expressed concern about inflation and said that the central bank would need to take measures to begin removing its low-interest rate policy sooner than currently anticipated. "
The Protocol selected, a division of Fed officials are most concerned that the economy is growing too slowly, including Bernanke, and some regional bank presidents who are concerned that the Feds policy could trigger high inflation.
Bernanke spoke to minority concerns in his testimony. He said that the central bank would be prepared to begin to raise interest rates more quickly than currently contemplated, if prices do not decline.
The Fed has kept its main interest rate at record low close to zero since December 2008. Most private economists believe the Fed will not start to raise interest rates until next summer. And some say that the Fed won't increase up to 2013, based on the slumping economy.
