WASHINGTON — The Federal Reserve chairman, Ben S. Bernanke, said Tuesday that the Fed was seeking greater clarity about the health of the recovery as it weighs the need for a new round of economic stimulus.
In a testimony before the Senate Banking Committee, Bernanke also strongly defended the Fed’s actions after it learned of problems in 2008 with the London interbank offered rate, or Libor. And he renewed his warnings that congressional inaction on fiscal policy threatens to upend the recovery and tip the economy into recession.
Repeating a formula he first articulated earlier this summer, Bernanke told the committee that the Fed’s decision about additional economic stimulus would turn on its judgment about the likely pace of job growth in coming months.
The crucial issue, he said, is “whether or not there is in fact a sustained recovery going on in the labor market or are we stuck in the mud.”
Bernanke avoided commitments to Fed action, saying that Fed officials were continuing to review the data and to consider their options. He also noted that the Fed could take steps other than asset purchases.
Bernanke reiterated that congressional inaction is a threat to the recovery.
“We are looking for ways to address the weakness in the economy, should more actually be needed,” Bernanke told the committee.
The members of the committee seemed little interested in questions of monetary policy, however, instead preferring to question Bernanke about revelations that banks had manipulated Libor, a benchmark rate used in determining the value of a wide range of financial assets.
In response to questions from members of both parties, Bernanke said the Fed has responded properly when it learned of problems with Libor by notifying British regulators who oversee the index and offering suggestions for improvements.
Bernanke also renewed his frequent warnings that the current fiscal policy is endangering economic growth. He said planned cuts in federal spending at the end of the year could push the economy back into recession, while the projected long-term growth of spending is an “unsustainable path.”
“The most effective way that Congress could help to support the economy right now,” Bernanke said in his prepared testimony, “would be to work to address the nation’s fiscal challenges in a way that takes into account both the need for long-run sustainability and the fragility of the recovery.”
Bernanke is scheduled to testify Wednesday before the House Financial Services Committee as part of his twice-a-year report to Congress on the state of monetary policy.