A case for stimulus

WASHINGTON â?? Federal Reserve Chairman Ben S. Bernanke, saying that economic conditions are "far from satisfactory," made clear Friday that he was preparing additional monetary stimulus to spur the weak recovery, most likely at the central bankâ??s next policy meeting in mid-September.

In a highly anticipated speech delivered at the Fedâ??s annual retreat in Jackson Hole, Wyo., Bernanke offered a vigorous defense of the central bankâ??s past moves to stimulate the economy. He cited independent research indicating that the Fedâ??s prior bond-buying programs had lowered long-term interest rates as intended, to lift investment and spending.

"These effects are economically meaningful," Bernanke said.

In recent weeks, the Fed has given increasing signals that it is seriously considering the launch of another round of large-scale bond purchases, known in Fed-talk as quantitative easing. Some Fed members have argued against such action, fearing more easing of the money supply would lead to asset bubbles and higher inflation down the road.

But Bernanke has repeatedly expressed his dissatisfaction with economic growth and particularly the job market. He said again Friday that improvement in the labor market has been "painfully slow."

Furthermore, Bernanke made clear where he stands on an important debate about whether the high unemployment rate was structural or cyclical. Some economists argue that skill mismatches and other structural factors are behind the persistently high jobless rate, implying that further monetary stimulus would do no good.

But Bernanke said Friday, "I see little evidence of substantial structural change in recent years," suggesting that the labor problems are due mostly to cyclical factors in which businesses arenâ??t hiring because of weak demand.

The Fed has a dual mandate from Congress â?? to maintain price stability and maximize employment. The central bank has been successful in controlling inflation â?? and Bernanke doesnâ??t see it as a long-term concern. But with unemployment at 8.3 percent more than three years since the Great Recession officially ended, the Fed chief and most of his colleagues have increasingly stressed the need to tackle the weak labor conditions.