The US Federal Reserve will take more aggressive steps to boost growth if the economic outlook "deteriorated significantly," the central bank chief Ben Bernanke said Friday.
But he said prospects for a US growth pick up in 2011 appeared to "remain in place" despite a sharp government cutback Friday in the pace of second quarter economic expansion.
The Federal Open Market Committee, the central bank's policy body, "is prepared to provide additional monetary accommodation through unconventional measures if it proves necessary, especially if the outlook were to deteriorate significantly," Bernanke said.
It was his strongest signal yet that the central bank could resume massive purchases of longer-term debt if the economy worsened, a move that would add to the Federal Reserve?s already bloated balance sheet.
Bernanke spoke just after the government Friday slashed second quarter growth in the world's largest economy to a pace of 1.6 percent, signaling a more pronounced slowdown in the recovery from recession.
Gross domestic product growth in the April-June period fell from 3.7 percent in the first quarter on the back of a massive trade deficit and weak private inventory investment, the Commerce Department said.
It was sharply lower than the annualized 2.4 percent projected earlier by the government and came a shade higher than expected by most economists who had expected GDP growth to be shaved by nearly half to 1.4 percent.
Speaking at annual central bank talks from Jackson Hole, the plush ski resort in the Teton mountains in Wyoming state, Bernanke said the central bank had adequate weapons in its armour to jolt the economy from any sharp slowdown, brushing off criticism from some analysts that it was pushed to a corner.
"The issue at this stage is not whether we have the tools to help support economic activity and guard against disinflation," he said. "We do.
"The issue is instead whether, at any given juncture, the benefits of each tool, in terms of additional stimulus, outweigh the associated costs or risks of using the tool," he stressed.
The Fed has already pumped in hundreds of billions of dollars into the economy since a home mortgage meltdown triggered the worst financial crisis in decades and plunged the economy into recession in December 2007.
The central bank has also slashed interest rates to virtually zero percent to spur growth.
Bernanke said incoming data suggested that the recovery of output and employment in the United States has slowed in recent months to a pace somewhat weaker than most central bank policmakers projected earlier this year.
Much of the unexpected slowing was attributable to the household sector, where consumer spending and the demand for housing had both grown less quickly than anticipated.
"I expect the economy to continue to expand in the second half of this year, albeit at a relatively modest pace," he said.
Copyright 2010 AFP American Edition
