WASHINGTON — Federal Reserve Chairman Ben Bernanke offered a sour assessment of the U.S. economy Tuesday, and said the Fed is ready to take further action if growth doesn’t pick up. But Bernanke provided no clues about what steps the Fed might take or whether any action was imminent.
Investors were hoping Bernanke would signal that the Fed planned to launch another round of bond purchases, to drive down long-term interest rates and encourage more borrowing and spending.
Stock prices slipped after Bernanke’s testimony was released, but they bounced back later.
Bernanke’s mid-year report to Congress on the economy comes as job growth has slumped, manufacturing has weakened and consumers have cut back on spending.
Bernanke acknowledged those trends. He noted that the economy, after growing at an annual rate of 2.5 percent in the second half of 2011, slowed to roughly 2 percent in the first three months of this year and likely weakened further in the April-June period.
The economy will likely continue to expand moderately, he said. But the meager growth would slow further if Europe’s debt crisis worsens or if Congress doesn’t address an impending budget crisis before the end of the year.
“Although declines in energy prices are now providing some support to consumers’ purchasing power, households remain concerned about their employment and income prospects and their overall level of confidence remains relatively low,” Bernanke said in his testimony.
Even if the Fed announces another round of bond purchases, some economists question how much that would help. They note that mortgage rates and other key interest rates are already at record-low levels.
Bernanke has noted that the Fed can do only so much to help the economy. In his testimony, he pointed to the Congressional Budget Office’s warning that the economy could suffer a shallow recession next year if Congress fails to reach a budget deal that would avert steep tax hikes and across-the-board spending cuts.
“The most effective way that the Congress could help to support the economy right now would be to work to address the nation’s fiscal challenges in a way that takes into account both the need for long-run stability and the fragility of the recovery,” Bernanke said in his testimony.
“Doing so earlier rather than later would help reduce uncertainty and boost household and business confidence.”