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Ben Bernanke offers no sign of stimulus but says Fed will step in if needed

Category : Business

Bernanke tells Congress that economic recovery remains fragile and warns that Europe’s woes pose siginificant risks to US

Federal Reserve chairman Ben Bernanke on Thursday stopped short of signalling any new action to help the fragile US economy, saying the recovery was continuing but warning of potential pitfalls ahead.

“Economic growth appears poised to continue at a moderate pace of over coming quarters,” Bernanke told the congressional joint economic committee. He said the Fed “remains prepared to take action as needed to protect the US financial system and economy.”

Bernanke was speaking after disappointing news in the jobs market. Last week the labor bureau reported that the US added just 69,000 jobs in May as the unemployment rate rose to 8.2%, the first rise in nine months.

The news and continuing fears that Europe’s economic woes are dragging on the US economy have led to speculation that the Fed will step in with a third round of financial stimulus known as quantitative easing, especially after officials hinted more action was being considered.

Fed vice-chairwoman Janet Yellen said in a speech this week that “scope remains for the [Fed] to provide further policy accommodation”. Atlanta Fed president Dennis Lockhart said in a speech in Florida that he was “giving more weight and higher probability to a negative influence on our economy coming from Europe”.

But while Bernanke said all options were being considered, he stopped well short of making any similar comments. He said the Fed was studying the situation but still had to “make difficult assessments” at its June 19-20 meeting.

“The situation in Europe poses significant risks to the US financial system and economy and must be monitored closely,” Bernanke said in testimony. He said that European policymakers had made moves to address their issues but that more action was needed. Bernanke said Europe’s problems were far more likely to affect the US than slowing growth in China.

The Fed chairman also warned that political in-fighting over the so-called “fiscal cliff” could hurt the US recovery. Bush-era tax cuts are set to expire at the end of December as a raft of budget cuts drawn up as a compromise between Republicans and Democrats are also set to be imposed. The two sides are now at loggerheads about how best to manage the situation.

A severe tightening of fiscal policy at the beginning of next year would “pose a significant threat to the recovery. Moreover, uncertainty about the resolution of these fiscal issues could itself undermine business and household confidence,” said Bernanke.

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