Bernanke says Fed will act if needed

“The committee is prepared to provide additional monetary accommodation through unconventional measures if it proves necessary,especially if the outlook were to deteriorate significantly,” Bernanke told a Fed conference,held in Jackson Hole,Wyoming.

Bernanke’s comments,in an address to an annual conference of global central bankers hosted by the Fed,came as the government reported the economic growth rate in the second quarter was weaker than it had originally estimated. Bernanke made clear that the U.S. central bank has not decided what would prompt additional easing. “The committee has not agreed on criteria or triggers for further action,” he said.

“The overall tone was one of watch and wait,” Goldman Sachs economist Jan Hatzius wrote in a note to clients,”despite ongoing signs that U.S. economic activity has not only dropped below its potential growth rate but has a significant probability of weakening further.” Stocks initially fell after Bernanke’s remarks,but reversed course and the three major indexes closed up 1.7 percent. The dollar was little changed against a basket of currencies after Bernanke’s lack of a firm commitment for additional easing,which could put downward pressure on interest rates. Prices for government bonds tumbled.

While Bernanke focused on near-term issues in the U.S. economy,the head of the European Central Bank,Jean-Claude Trichet,also speaking at the Jackson Hole conference,addressed long-term global challenges. He urged governments and central banks to ensure that the transition from very high debt levels incurred in response to the global financial crisis and its economic fallout takes place in an orderly fashion and without compromising economic growth.

“The primary macroeconomic challenge for the next 10 years is to ensure that they do not turn into another ‘lost decade,'” Trichet told the conference.

Trichet avoided any direct references to current monetary policy ahead of next week’s meeting of the ECB. In Japan,which has experienced decades-long stagnant growth,the Bank of Japan is examining holding an emergency meeting early next week to ease monetary policy as the strong yen threatens recovery.