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Fed has room for more stimulus: Bernanke

U.S. Federal Reserve chairman Ben Bernanke

JONATHAN ERNST/REUTERS

The Federal Reserve Board has room to deliver additional monetary stimulus to boost the U.S. economy, Fed chairman Ben Bernanke told a Congressional oversight panel in a letter.

"There is scope for further action by the Federal Reserve to ease financial conditions and strengthen the recovery," Mr. Bernanke wrote to the committee's chairman, Representative Darrell Issa, in a letter obtained by Reuters on Friday.

Mr. Bernanke at the end of next week will give a closely watched speech at an annual symposium in Jackson Hole, Wyo., which will be closely watched for clues into the prospect of further bond-buying from the Fed.

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Asked whether it was too soon to consider new monetary easing steps when the Fed's Operation Twist program aimed at lowering long-term bond yields was still in effect, Mr. Bernanke said policy makers must invariably look beyond the immediate term.

"Because monetary policy actions operate with a lag, the stance of policy must necessarily be set in light of a forecast of future performance of the economy," Mr. Bernanke said.

Fed officials sharply revised down their forecasts for U.S. economic growth in June, and another potential round of downward revisions could come at its September meeting.

U.S. gross domestic product expanded at an annual rate of 1.5 per cent in the second quarter, a level seen as too weak to lead to a sustained decline in unemployment, which rose to 8.3 per cent in July.

In response to the financial crisis and recession of 2008-09, the Fed cut rates to effectively zero and bought some $2.3-trillion (U.S.) in mortgage and Treasury bonds to put downward pressure on long-term borrowing costs.

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