The chairman of the U.S. Federal Reserve, Ben Bernanke, offered no new stimulus for the American economy Friday, disappointing analysts and economists who had been hoping for measures to counter a slowing in growth.
In a speech during the bank's annual meeting in the resort of Jackson Hole, Wyoming, Bernanke did hint that Congress may need to act to stimulate hiring and growth.
The Fed chairman agreed that deficit reduction is necessary in the long-term, but added that future economic health could be undermined if hiring and growth are not strengthened now.
"Fiscal policymakers should not ... disregard the fragility of the current economic recovery," he said.
Bernanke also was critical of Congress' handling of this summer's battle over raising the debt ceiling. He said it disrupted the economy, and another episode like that could have long-term negative consequences.
To promote growth, Bernanke said the government must pursue tax, trade, and regulatory policies that encourage economic health.
Congress, however, has been focused on reducing the national budget deficits and less occupied with new spending to try to energize the economy. A plan lawmakers passed this month means annual deficits are expected to be reduced by $3.3 trillion US over the next decade through spending cuts.
September meeting will explore Fed's options
Analysts noted the lack of new proposals in Bernanke's speech.
"He essentially hit the ball over to fiscal authorities and said, `There's only so much we can do,'" said Aneta Markowska, senior U.S. economist at Société Générale.
Bernanke left open the possibility of future action by the Fed, saying it "is prepared to employ its tools as appropriate to promote a stronger economic recovery."
He announced its monetary policy committee will expand its meeting in September from one day to two in order to study and discuss options to for additional monetary stimulus.
Markowska said the extension of the Fed's September meeting might suggest something new could be unveiled.
"Maybe that's a subtle signal they might announce something," she said.
The Fed chairman said record low interest rates will promote growth over time but that the weak economy requires further help in the short run.
U.S. economy grows just 1%
His speech followed the release of a government report that the economy grew at an annual rate of just one per cent this spring and 0.7 per cent for the first six months of the year.
The report predicted only slightly healthier expansion in the second half.
Bernanke said he's optimistic that the job market and the economy will return to full health in the long run.
U.S. stock markets fell sharply after the speech but later recovered to close with their highest weekly gains in the last eight weeks. The Dow was up 134.63, or 1.21 per cent, at 11284.46, the S&P 500 was higher by 17.53, or 1.51 per cent, at 1,176.80 and the Nasdaq rose 60.22, or 2.49 per cent to 2,479.85.
Bernanke's speech comes at a critical moment for the economy. Some economists worry that another recession might be near.
Consumer spending has slowed. Home prices are depressed. Workers' pay is barely rising. Household debt loads remain high.
All that, compounded by Europe's debt crisis, has spooked the stock markets and unnerved consumers. Congress is focused on shrinking deficits and seems unlikely to back any new spending to try to energize the economy.
The Fed already announced on August 9 that it would keep short-term interest rates near zero through mid-2013.