While insisting that the Federal Open Markets Committee would take further action, if necessary, to shore up the faltering economic recovery, Federal Reserve Chairman Ben Bernanke on Tuesday said policymakers must do more to prevent conditions from worsening.
‘Monetary policy can be a powerful tool, but it is not a panacea for the problems currently faced by the U.S. economy," Bernanke said in written testimony prepared for his appearance before the Joint Economic Committee. "Fostering healthy growth and job creation is a shared responsibility of all economic policymakers, in close cooperation with the private sector.’
Bernanke also outlined four key objectives that he said policymakers should keep in mind. He described as crucial the objective of achieving long-term fiscal sustainability. Bernanke also emphasized that policymakers should avoid fiscal actions that could impede the economic recovery, use federal spending and the tax code to promote long-term economic growth and opportunity, and improve the process for making long-term budget decisions.
Revised government data indicates that the recession was even deeper, and the recovery weaker, than previously thought, Bernanke testified. The Fed once again flexed its muscle last month, announcing it would begin reinvesting payments on its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities instead of longer-term Treasury securities.
The action, Bernanke said, should contribute to a stronger economic recovery by reducing the interest rate on Treasury securities by approximately 0.2 percentage points, a New York Times report states.
"We think that this is a meaningful but not an enormous support to the economy," Bernanke said, according to the Times. "It should help somewhat on job creation and growth."