Bernanke: Fed will decide next month on new policy

JACKSON HOLE, Wyo. (MarketWatch)
Federal Reserve Chairman Ben Bernanke on Friday put off a lengthy discussion of the easing options available to the central bank until the next Federal Open Market Committee meeting late next month. “The Fed has a range of tools that could be used to provide additional monetary stimulus,” Bernanke said. These options were discussed in August and “we will continue to consider these and other pertinent issues...at our meeting in September,” Bernanke said.
Bernanke announced that the Fed had decided to expand its September meeting to two days – Sept. 20 and 21 – to review the pros and cons of further easing.
“The Fed is not prepared to act at this point, but kept a bias to ease in place,” said Peter Hooper, chief economist at Deutsche Bank.
Hooper said even though he didn’t expect much talk of more easing in the speech he was surprised about how little there actually was.
After an initial sharp drop upon publication of Bernanke’s speech, stocks came back, with the Dow advancing in late morning trade.
At its policy meeting earlier this month, the Fed took the unprecedented step of announcing that they expect the benchmark Federal funds rate to remain close to zero until at least mid-2013.
There were three dissents to the move.
Former Fed governor Randy Krozner said prior to the speech that promising to keep rates lower for longer was the only move Bernanke could do until the September meeting.
Many Fed watchers had expected at least a discussion of the options in today’s speech.
Financial markets have been waiting for the speech to hear Bernake’s views on whether he thinks the economy will avoid a double-dip recession and what steps he might be willing to take to stave off a possible severe downturn.
But Bernanke refrained, saying it was unclear how recent stock market weakness, debt-ceiling negotiations and the European debt crisis had impacted the economy.
“It is difficult to judge by how much these developments have affected economic activity thus far, but it seems little doubt that they have hurt household and business confidence and that they pose ongoing risks to growth,” Bernanke said. Bernanke said the Fed had marked down its forecast over coming quarters but still expected “a moderate recovery” to continue and indeed strengthen over time.
Critiquing Congress Bernanke also criticized Congress, saying the recent debate over the debt ceiling had hurt the economy.