In a speech Friday in Jackson Hole, Wyo., Fed Chairman Ben Bernanke also said that President Obama and Congress, as well as officials in Europe, need to step up to ensure economic growth.
Federal Reserve Chairman Ben Bernanke voiced optimism Friday that the United States can avoid prolonged stagnation, but that outcome, he said, can't be achieved through Fed policy alone.
Here's a rough translation of what he said in a major speech at a conference for central bankers in Jackson Hole, Wyo.: The economy can grow normally again, but President Obama and Congress, as well as folks in Europe, need to step up to make that happen.
Mr. Bernanke wasn't arguing that the Fed has no further role to play. The central bank will examine options for monetary policy at a meeting in September, he said. Yet the Fed, he emphasized, can do only so much.
While saying the Fed has a "range of tools" that can still be deployed to nudge the economy in the short run, Bernanke said the economy now faces a twofold challenge: spurring activity by consumers and businesses in the near-term, and doing so in a way that also sets a solid foundation for long-term growth.
"Most of the economic policies that support robust economic growth in the long run are outside the province of the central bank," he said.
When the text of Bernanke's speech was released, US stock prices initially sagged, perhaps because he shied away from any specifics on possible changes to Fed policy. No hint of "QE3" (a third round of so-called quantitative easing), other than to say that options will be discussed.
But soon investors pushed stock prices back up. Various factors may have been involved - including some unrelated to the Jackson Hole speech - but some market analysts said traders were cheered by both Bernanke's cautious optimism and his wake-up call to other policymakers.
His appeal to politicians in Washington, who have locked horns recently over taxes and spending, was pointed: "Without significant policy changes," he said, "the finances of the federal government will inevitably spiral out of control, risking severe economic and financial damage. …