(AP) - In his speech to an annual Federal Reserve conference in Jackson Hole, Wyo., Chairman Ben Bernanke signaled that the Fed will take more action if the economy and job market don't improve.
Bernanke spoke in detail about the Fed's recent policies, in particular its two rounds of bond purchases. He argued that those actions have helped the economy recover from the Great Recession. The goal has been to drive down loan rates and encourage borrowing and spending.
Since 2009, the Fed has bought more than $2 trillion in U.S. Treasury and mortgage-backed securities. Those purchases have helped lower long-term interest rates and ignited a rally in financial markets.
In a nod to more action, Bernanke noted that the economy could suffer years of damage if unemployment remains high. While the unemployment rate has declined from its peak of 10 percent in October 2009, the rate has been above 8 percent for the past 3 1/2 years. It's now 8.3 percent.
Here are some highlights of what the Fed chairman said in his speech Friday:
_ `LEARNING BY DOING'
Bernanke said the damage to the economy from the 2008 financial crisis and ensuing recession was "severe" and required the use of "nontraditional" policy steps. The Fed was guided by general principles and "some insightful academic work." But there was limited historical experience. "As a result, central bankers in the United States, and those in other advanced economies facing similar problems, have been in the process of learning by doing."
_ BENEFITS OF STIMULUS
Bernanke pointed to studies that show the Fed's first two rounds of bond purchases have helped lower the yield on the U.S. 10-year Treasury note. In October 2008, at the height of the crisis, the yield was nearly 4 percent. A month later, the Fed announced the first round of bond purchases, and the yield began to tumble. By year's end, the yield was just above 2 percent. The yield also fell when the Fed announced the second round of bond purchases in fall of 2010. (It touched a record low of 1.46 percent twice this year, largely because of concerns about Europe's economy. It was 1.58 percent on Friday.)
Bernanke also cited another study showing that the bond purchases may have helped boost growth and increased private payrolls by more than 2 million jobs. "Central bank securities purchases have provided meaningful support to the economic recovery while mitigating deflationary risks," he said.
_ INFLATION CONCERNS
Critics of the Fed's policies have expressed concern that further bond purchases could fan inflation risks. But Bernanke said the Fed has been monitoring that risk, even when expanding its investment portfolio. "The costs of nontraditional policies, when considered carefully, appear manageable," he said.
_ OTHER POTENTIAL RISKS
The Fed's bond purchases carry other costs, Bernanke noted. Among those he cited: The Fed could become too dominant a player in the Treasury market, which could lead to less trading by private investors and hurt the global financial system. Ultimately, that could push interest rates higher, running counter to the Fed's goal. But Bernanke downplayed that risk, saying private-sector holdings remain large and trading remains "robust."
_ ECONOMY STILL WEAK
Bernanke warned that the economy is "far from satisfactory." Without stronger growth, unemployment will likely stay above healthy levels. (Most economists say "normal" unemployment is below 6 percent.) High unemployment "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," he said.
_BUDGET CUTS SLOW GROWTH
The economy is also being held back by governments that have been forced to tighten budgets. State and local officials continue to cut spending and jobs, Bernanke noted. And Congress is in a budget deadlock that could push the federal budget off a "fiscal cliff" at the end of the year and trigger deep spending cuts and tax increases. That threat has weighed on economic growth, Bernanke said. He urged federal lawmakers to put forth a credible budget plan for the long term without sharply contracting the budget in the short term.
_ MORE STIMULUS LIKELY
Bernanke made clear that further progress is necessary, particularly in the job market. While he acknowledged the risks and limits of more Fed action, he made clear that "the Federal Reserve will provide additional policy accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions."
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