Few think Bernanke speech will signal major action

Federal Reserve Chairman Ben Bernanke testifies on Capitol Hill in Washington, before the Senate Banking Committee in Feb. 2011. Some economists worry that low rates might be hurting the economy itself — defeating the purpose of the Federal Reserve's low-rate policies. When savers earn less, they spend less. And spending by individuals drives about 70 percent of the U.S. economy
J. Scott Applewhite | AP
Federal Reserve Chairman Ben Bernanke testifies on Capitol Hill in Washington, before the Senate Banking Committee in Feb. 2011. Some economists worry that low rates might be hurting the economy itself — defeating the purpose of the Federal Reserve's low-rate policies. When savers earn less, they spend less. And spending by individuals drives about 70 percent of the U.S. economy
Posted Aug. 25, 2011, at 7:27 p.m.

WASHINGTON — Many on Wall Street hope Federal Reserve Chairman Ben Bernanke will unveil a new effort Friday to boost the economy in a highly anticipated speech in Jackson Hole, Wyo.

Economists say a major new program is unlikely. But Bernanke will likely lay out the Fed’s options for lowering long-term interest rates even further.

His speech comes at a pivotal moment for the U.S. economy. Growth has slowed. Stock prices have been gyrating. Europe is struggling to contain a spreading debt crisis. And analysts have been reducing their forecasts for growth this year and next.

The situation resembles the one Bernanke faced last year. He responded at the annual economic conference in Jackson Hole by suggesting that the Fed could buy more government bonds. The goal was to reduce long-term rates, stimulate spending and lift stock prices.

The Fed began buying $600 billion in Treasurys in November and completed its purchases in June. Stock prices rose steadily throughout the bond-buying program.

One reason few expect any such dramatic step this time is that just two weeks ago, Fed policymakers said they would keep short-term rates at record lows for two more years.

“It would seem strange for Bernanke to conclude so soon that this move was not enough,” Paul Dales, an economist at Capital Economics, said in a note to clients.

Inflation is higher than it was last year, though still within the Fed’s target range. But the Fed prefers to consider “core” inflation, which excludes volatile food and energy prices. Core prices rose 1.8 percent in July from July last year.

That’s twice the rate in July 2010, when the Fed was worried about deflation — a debilitating drop in prices and wages. Last month, Bernanke said the Fed would consider further steps if the threat of deflation returned.

The Fed chairman will likely outline the economy’s challenges and explain why growth will probably stay weak for several years, analysts said.

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