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Ben Bernanke’s Jackson Hole speech may hold clues to Fed action

Federal Reserve chairman Ben S. Bernanke could reveal clues about actions the central bank may take to boost the nation’s struggling economy.

AFP/GETTY IMAGES

Federal Reserve chairman Ben S. Bernanke could reveal clues about actions the central bank may take to boost the nation’s struggling economy.

When Federal Reserve chairman Ben S. Bernanke takes to the podium Friday in Jackson Hole, Wyo., economists, investors, policy makers, and presidential candidates will watch for signals of whether the central bank will take new steps to boost the nation’s struggling economy.

Bernanke’s speech at the annual conference sponsored by the Federal Reserve Bank of Kansas City comes as Fed policymakers are divided about what, if anything, the Fed should do to rev up an economy that has grown too slowly to bring down the unemployment rate significantly. The Fed’s 12-member Open Market Committee, which sets interest rates and other economic policies, meets in about two weeks to consider possible actions.

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Bernanke, said Harvard University economics professor Kenneth Rogoff, should use the speech to inspire a consensus among Fed policy makers to add more stimulus into the economy.

“The problem is not so much a lack of tools than it is a lack of willingness on his committee,” Rogoff said. “They’re not won over.”

The title of Bernanke’s speech, “Monetary Policy Since the Crisis” is very broad, providing him room to take up any number of topics but giving few hints of what he might say, analysts said. The Fed chief could announce new measures to stimulate the economy, hint at preferred steps the central bank might take, or steer clear of new pronouncements.

The Fed faces huge economic challenges, including a prolonged period of unemployment in excess of 8 percent, with only a few limited tools for improving the situation. The Fed has already cut its benchmark short-term interest rate to near zero, and bought hundreds of billions of US Treasuries and other securities to lower long-term interest rates, such as for mortgages, which are also near record lows.

Over the past few months, policymakers have debated whether to undertake another round of bond purchases to lower long-term interest rates, to spur consumers and businesses do borrow and spend more. The debate has also become unusually public for an institution know for secrecy. Some policy makers have expressed concerns about additional stimulus measures, arguing they would have little impact while increasing the risk of reigniting inflation. Charles Plosser, president of the Federal Reserve Bank of Philadelphia, for example, told The Wall Street Journal this month that he opposed further action because lower interest rates will have little effect on the major factors holding back economic growth — the financial crisis in Europe and political uncertainties in the United States.

But in a series of media interviews, Federal Reserve Bank of Boston chief Eric Rosengren advocated forcefully for additional action by the Fed, citing the need to bring down devastatingly high unemployment. Both Rosengren and Plosser are attending the conference.

Some analysts expect Bernanke to make the case for further action by the Fed. Scott Anderson, chief economist for Bank of the West of San Francisco, noted Bernanke used his Jackson Hole speech in 2010 to foreshadow an earlier round of round of bond purchases, “setting up expectations that he might do it again.”

“I’m not so sure,” he said. “I think there’s a wide majority opinion that more needs to be done, but I don’t think there’s agreement about specific policy measures.”

Jim O’Sullivan, chief US economist for High Frequency Economics, a Vallahalla, N.Y. forecasting firm, said the Fed has already raised expectations that it will undertake some form of stimulus soon. O’Sullivan said that could mean a major bond purchase program or a statement about keeping interest rates low through 2015. The committee has already taken the unusual stance of announcing that it will keep interest rates very low through 2014.

“These are unchartered waters,” O’Sullivan said. “It’s going to be ‘wait and see.’ ”

Megan Woolhouse can be reached at mwoolhouse@globe.com
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