The Federal Reserve is prepared to take further action to jump start the sluggish U.S. recovery, the nation's top central banker told lawmakers Tuesday morning.
However, Fed Chairman Ben Bernanke offered no hints that the central bank is specifically planning another round of quantitative easing.
"Reflecting its concerns about the slow pace of progress in reducing unemployment and the downside risks to the economic outlook, the FOMC made clear at its June meeting that it is prepared to take further actions as appropriate to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability," Bernanke said in delivering his twice-a-year testimony to the Senate Banking Committee.
The Fed has already promised to keep interest rates at record lows through 2014, and in June extended its Operation Twist to buy longer-term Treasuries in an effort to keep real interest rates near zero.
Real gross domestic product (GDP) increased at a 2 percent pace in the first quarter of 2012, and available indicators point to a still-smaller gain in the second quarter. The jobs market has lost momentum as manufacturing activity has tailed off in recent months.
The reduction in the unemployment rate in coming months seems likely to be "frustratingly slow," and the Fed expects the unemployment rate to hold above 8 percent through year's end.
Housing was the lone bright spot in Bernanke's assessment of the economic situation.
"We have seen modest signs of improvement in housing. In part because of historically low mortgage rates, both new and existing home sales have been gradually trending upward since last summer, and some measures of house prices have turned up in recent months," Bernanke noted.
The fragile U.S. recovery could be threatened endangered by tax increases and spending reductions that will take effect early next year if no legislative action is taken, according to Bernanke.
Lawmakers can help restore confidence by edging away from the so-called "fiscal cliff" sooner than later. Failing to do so puts the U.S. economy at risk of recession in 2013, he warned.
by RTT Staff Writer
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