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Bernanke to stimulate US growth

Jackson Hole, Wyoming - US Federal Reserve chairman Ben Bernanke sent a strong signal on Friday that he wants the central bank to take fresh action to stimulate growth.

In the keynote speech of the Fed’s annual conference of central bankers in Jackson Hole, Wyoming, he said that stagnation in the labour market was “a grave concern”.

US Federal Reserve Board Chairman Ben Bernanke. Credit: AP

He said the Fed would take additional action “as needed” to boost job creation.

Bernanke stopped short of committing the Fed to any specific move, such as another round of bond purchases to lower long-term interest rates. But Bernanke suggested that the Fed would consider further steps to boost the economy, which he described as “far from satisfactory”.

Markets liked the news: oil prices climbed steadily and the Standard & Poor’s 500 index ended up 0.51 percent. Bond prices climbed sharply, with the yield on the 10-year Treasury bond falling to 1.56 percent from 1.62 percent on Thursday.

Some economists said Bernanke’s comments raised the likelihood that he could garner support for fresh action in the Federal Open Market Committee’s (FOMC’s) September 12-13 meeting, while others noted resistance to a third round of quantitative easing (QE) in the FOMC and the still-mixed signals from data.

Joseph LaVorgna of Deutsche Bank said: “We continue to anticipate a ‘verbal easing’ through extension of the Fed funds guidance, but do not anticipate quantitative easing at this juncture.

“Moreover, further easing risks political fallout as the battle for the White House, largely focused on the economy under President Barack Obama, intensifies ahead of the November 6 election.

Obama’s rival Mitt Romney said last week that he disapproved of the Fed’s recent work and that he would seek to replace Bernanke if he won the presidency.

“I don’t think QE2 was terribly effective. I think a QE3, another Fed stimulus, is not going to help this economy. I think that’s the wrong way to go,” Romney said.

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