NY (FT) -- Ben Bernanke, Federal Reserve chairman, said on Friday that weaker-than-expected consumer spending growth and a "depressed" housing market had slowed the pace of the US recovery and promised that the central bank was ready to take "unconventional" steps to stimulate the economy if needed.
In a speech at a gathering of central bankers in Jackson Hole, Wyoming, Mr Bernanke acknowledged that the pace of economic growth had been "less vigorous" than the Fed was expecting and that the pace of the labour market's recovery had been "painfully" slow.
Mr Bernanke's remarks came after a sharp downward revision to second-quarter gross domestic product, which was held back due to a surge in imports. The Fed chairman said that the US central bank was surprised by the "sharp deterioration" in the US trade balance, but discounted it as the result of temporary and special factors.
The Fed chairman defended the central bank's surprise decision earlier this month to keep the size of its balance sheet constant and said the Fed was prepared to take "unconventional" measures to stimulate the economy if the outlook darkens.
Outlining other ammunition the Fed could use, Mr Bernanke pointed to additional purchases of long-term securities, changing the language of the Fed's statements and reducing interest paid on excess reserves.
Mr Bernanke said there was no support within the Fed to increase its medium-term inflation goals above levels consistent with price stability.
"Such a step might make sense in a situation in which a prolonged period of deflation had greatly weakened the confidence of the public in the ability of the central bank to achieve price stability, so that drastic measures were required to shift expectations," Mr Bernanke said.
In the short term, Mr Bernanke said that pre-conditions for a pick-up in growth in 2011 "appear to remain in place".
By Alan Rappeport, FT.com August 27, 2010 -- Updated 1812 GMT (0212 HKT)
© The Financial Times Limited 2010