By Simon Miller
The head of US Federal Reserve Ben Bernanke has refused to rule out another round of quantative easing, insisting that there were a range of tools at his disposal.
However, he did not announce another round of QE during a speech which some in the marketplace called a “non-event”.
Speaking at the Economic Policy Symposium at Jefferson Hole today, Bernanke said the recession would not have a long-term negative impact although “this economic healing will take a while, and there may be setbacks along the way”.
He added: “Moreover, we will need to remain alert to risks to the recovery, including financial risks. However…the healing process should not leave major scars.”
Bernanke warned that the quality of economic policymaking in the US would heavily influence the nation's longer-term prospects.
He continued: “To allow the economy to grow at its full potential, policymakers must work to promote macroeconomic and financial stability; adopt effective tax, trade, and regulatory policies; foster the development of a skilled workforce; encourage productive investment, both private and public; and provide appropriate support for research and development and for the adoption of new technologies.”
The Fed chairman added that monetary policy must ensure that inflation remained low and stable over time to contribute to long-run macroeconomic and financial stability.
“Low and stable inflation improves the functioning of markets, making them more effective at allocating resources; and it allows households and businesses to plan for the future without having to be unduly concerned with unpredictable movements in the general level of prices. The Federal Reserve also fosters macroeconomic and financial stability in its role as a financial regulator, a monitor of overall financial stability, and a liquidity provider of last resort,” said Bernanke.
He continued: “To achieve economic and financial stability, U.S. fiscal policy must be placed on a sustainable path that ensures that debt relative to national income is at least stable or, preferably, declining over time. As I have emphasised on previous occasions, without significant policy changes, the finances of the federal government will inevitably spiral out of control, risking severe economic and financial damage.”
David Miller, partner at Cheviot Asset Management, commented: “Markets may have hoped that he would ride to the rescue with more QE, his priority is to create a solid platform for economic growth and not simply to delay the inevitable reckoning.”