All eyes were on Jackson Hole, Wyoming Friday, as leaders of the world's central banks convened for their annual economic retreat in the small, quiet town along the Teton mountain range.
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The most anticipated attraction â€" Federal Reserve Chairman Ben Bernanke. Market analysts, economists, and Wall Street were all ears for the top U.S. banker's speech at the summit, hoping to glean some semblance of the Fed's plan for dealing with the nation's lukewarm economic recovery, particularly following the ""Commerce Department's revision"":http://www.commerce.gov/news/press-releases/2010/08/27/statement-under-secretary-rebecca-blank-second-estimate-gross-domesti of second-quarter GDP growth on the very same day, which was lowered to 1.6 percent from the previous estimate of 2.4 percent.
Bernanke used his words to reassure markets that the Fed is on top of the situation and has further policy options to provide more stimulus to the economy if things don't improve soon, and according to the analysts and ""IHS Global Insight"":http://www.ihsglobalinsight.com, the central bank's chairman was convincing in his delivery.
Bernanke told his peers at the meeting that financial conditions ""are generally much improved,"" but he wasn't overly sanguine in his assessment. He was quick to add that ""the task of economic recovery and repair remains far from complete.""
Bernanke conceded that growth remains sluggish, unemployment is too high, and recovery is moving along
[COLUMN_BREAK]well below the Fed's projections. He said inflation has declined to levels that are not conducive to a healthy economy in the long-run.
He said it's ""clear that a return to strong and stable economic growth will require appropriate and effective responses from economic policymakers across a wide spectrum.""
""Bernanke outlined several policy actions"":http://www.federalreserve.gov/newsevents/speech/bernanke20100827a.htm the central bank is poised and ready to use.
“Notwithstanding the fact that the policy rate is near its zero lower bound, the Federal Reserve retains a number of tools and strategies for providing additional stimulus,†Bernanke said.
He says three, in particular, have been part of recent staff analyses and discussion at Fed board meetings. The first is to expand the central banks holdings and purchases of longer-term securities, including mortgage-backed securities from the GSEs.
Secondly, Bernanke suggested the Fed may modify its communications from the aptly coined _EE_-adage â€" Exceptionally low rates for an Extended period.
Bernanke says if conditions call for it, the central bank may reword its policy statements to communicate to investors that it anticipates keeping its benchmark rate low for a longer period than is currently priced in markets. Such a change would presumably lower longer-term rates by an amount related to the revision in policy expectations, he explained.
Thirdly, Bernanke says the Fed could lower the rate of interest it pays banks on the reserves they hold with the Federal Reserve System. He said this would provide banks with an incentive to increase their lending to nonfinancial borrowers or to participants in short-term money markets.
Bernanke offered assurances that he doesn’t believe the U.S. will revert into another recession, but he promised that the Fed will react swiftly if the recovery doesn’t pick up steam.