Federal Reserve chairman Ben Bernanke said today the US economic recovery has softened more than expected and the Fed is ready to take further steps if needed to spur the stumbling economy.
Mr Bernanke said the Fed "will do all that it can" to ensure a continuation of the economic recovery and said more securities purchases may be warranted if growth slows.
"The committee is prepared to provide additional monetary accommodation through unconventional measures if it proves necessary, especially if the outlook were to deteriorate significantly," he said in a speech to central bankers from around the world at the Kansas City Fed's annual monetary symposium in Jackson Hole, Wyoming.
The Fed chairman gave a detailed analysis of the economy and said growth during the past year has been "too slow" and unemployment too high.
However, he also said that the "preconditions" for a pickup in growth in 2011 "appear to remain in place."
Mr Bernanke said the risk of an "undesirable rise in inflation or of significant further disinflation seems low." He said the Fed has several tools if prices decelerate, or job growth stagnates, including shifting the composition of its bond reinvestment strategy.
Federal Reserve officials put their exit strategy on hold this month and decided to purchase Treasury securities to keep their portfolio from shrinking as their mortgage bonds mature.
Mr Bernanke said the US central bank's purchases of longer-term securities have been effective in lowering borrowing costs and that he believes the benefits of buying more such assets, if needed, would outweigh any disadvantages.
Other options - such as committing to hold rates exceptionally low for an even longer period than is currently priced in to markets, or raising the Fed's inflation targets - would be less effective, he said.
However, he made clear the Fed has not decided what would prompt additional Fed easing.
"At this juncture, the committee has not agreed on specific criteria or triggers for further action," he said.
US economic growth was revised down to a sluggish 1.6 per cent annual rate in the second quarter, pointing to an even softer performance in the third quarter.
The Commerce Department report today showed gross domestic product, the measure of total goods and services output within US borders, was dampened by the largest increase in imports in 26 years. Nonetheless, growth was not quite as weak as anticipated.
Reuters/Bloomberg