While Federal Reserve Chairman Ben Bernanke acknowledged the continued challenges facing the U.S. economy, the Fed chief did not specifically outline new monetary policy easing in a closely watched speech on Friday.
Speaking at the Kansas City Fed's Economic Symposium in Jackson Hole, Wyoming, Bernanke cited some positive signs for the economy but said the "economic situation is obviously far from satisfactory."
The Fed Chairman specifically pointed to the struggles of the labor market, noting that the rate of improvement in the labor market has been painfully slow.
"The stagnation of the labor market in particular is a grave concern not only because of the enormous suffering and waste of human talent it entails, but also because persistently high levels of unemployment will wreak structural damage on our economy that could last for many years," Bernanke said.
In light of the sluggishness of the economy recovery, Bernanke noted that the Fed will provide additional policy accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.
However, some investors were disappointed that the Fed chief did not explicitly signal any further stimulus efforts, as some had expected his remarks to more specifically point to another round of quantitative easing.
Expectations for further stimulus were boosted by the minutes of the Fed's latest monetary policy meeting, which said "many members" believed additional easing could be needed "fairly soon" unless the economy shows signs of "substantial and sustainable strengthening."
Commenting on the speech, Rob Carnell, chief international economist at ING, said, "There is clearly no unanimity for more QE or any other sort of substantive policy action at the September 13 meeting."
"Though we believe consensus for action exists, it will need some support from the data," he added. "Here, next, week's payrolls will be pivotal."
At the same time, some analysts noted that a large portion of Bernanke's speech was devoted to touting the effectiveness of the Fed's "nontraditional policies."
Paul Dales, Senior U.S. Economist at Capital Economics, said the speech came across as a "staunch defense of the effectiveness of unconventional monetary policy" and suggested that Bernanke has "taken a further step along the path to more policy stimulus."
The Federal Open Market Committee, the monetary policy setting arm of the Federal Reserve, is scheduled to hold a two-day meeting beginning September 12th.
ING's Carnell said, "The best argument for additional meaningful monetary policy easing in September remains that the following meeting in late October is too close to the November Presidential election to be used, and the later meeting in early December is too far away to be practical."
by RTT Staff Writer
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