Reuters | Aug 28, 2010 | 4:09am IST
U.S. Federal Reserve Chairman Ben Bernanke said on Friday the economic recovery has weakened more than expected and the Fed stands ready to act if needed to spur slowing growth. Bernanke downplayed concerns that the economy might slip back into recession, predicting a modest expansion in the second half of this year, with the pace picking up in 2011. Otherwise, he said the Fed has sufficient ammunition left and could support growth by purchasing more government debt or by promising to keep rates exceptionally low for a longer period than currently priced in by financial markets. Bernanke’s comments, in an address to an annual conference of global central bankers hosted by the Fed in Jackson Hole, Wyoming, came as the government reported the economic growth rate in the second quarter was weaker than it had originally estimated. Bernanke made clear that the U.S. central bank has not decided what would prompt additional easing. "The overall tone was one of watch and wait," Goldman Sachs economist Jan Hatzius wrote in a note to clients, "despite ongoing signs that U.S. economic activity has not only dropped below its potential growth rate but has a significant probability of weakening further."
While Bernanke focused on near-term issues in the U.S. economy, the head of the European Central Bank, Jean-Claude Trichet, also speaking at the Jackson Hole conference, addressed long-term global challenges. He urged governments and central banks to ensure that the transition from very high debt levels incurred in response to the global financial crisis and its economic fallout takes place in an orderly fashion and without compromising economic growth. "The primary macroeconomic challenge for the next 10 years is to ensure that they do not turn into another ‘lost decade,’" Trichet told the conference. In Japan, which has experienced decades-long stagnant growth, the Bank of Japan is examining holding an emergency meeting early next week to ease monetary policy as the strong yen threatens the country’s fragile economic recovery, a source familiar with the matter said. An emergency meeting may be held as early as Tuesday.