The tone of Bernanke’s remarks suggested, many economists say, that the central bank will launch a new round of economic stimulus when the Fed’s policy board meets in two weeks. It could embark on a new round of massive bond purchases, pushing record-low interest rates even lower and making it even cheaper for people to buy homes or refinance mortgages.
More likely, economists say, the Fed will take the more modest step of extending its plan to keep interest rates near zero for another year, from late 2014 to late 2015.
With Congress paralyzed and awaiting the outcome of the 2012 election, the Fed is carrying the entire burden of trying to keep the economy healthy in the face of many threats. But the central bank is also feeling more political pressure than perhaps ever before.
The Republican Party called for tightening oversight of the Fed at its national convention this week, and the party’s leadership has warned that the central bank’s actions have created dangers for the economy.
GOP presidential candidate Mitt Romney says he won’t reappoint Bernanke, and Republican lawmakers on Friday urged the Fed to refrain from taking any more action to stimulate economic activity.
Democrats have not been as outspoken. But lately, they have been putting additional pressure on the Fed to take measures to reduce unemployment.
In his speech, Bernanke argued that the nation’s high unemployment rate — 8.3 percent — represents a serious morale problem and also puts the long-term fortunes of the economy at risk.
“We must not lose sight of the daunting economic challenges that confront our nation,” Bernanke said, using strong language rare for the reserved former professor. “The stagnation of the labor market in particular is a grave concern, not only because of the enormous suffering and waste of human talent it entails, but also because persistently high levels of unemployment will wreak structural damage on our economy that could last for many years.”
“The Federal Reserve has acted to support economic growth and foster job creation,” he added, “and it is important to achieve further progress, particularly in the labor market.”
Bernanke hinted at, but offered no certainty of, action to come. His remarks suggest that he thinks the labor market might need another dose of medicine from the Fed.
In an analysis, JPMorgan’s chief U.S. economist, Michael Feroli, said, “It’s clear that the chairman, at least, has no intention of easing up on his resolve to attempt to foster recovery in the labor market.”
The urgent tone of Bernanke’s comments could leave investors disappointed if the Fed does not announce new stimulus measures at its Sept. 12-13 policymaking meeting. But investors seemed hopeful on Friday, with U.S. stocks up by about 0.6 percent.