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Bernanke: Recovery will take longer than we thought

The Fed chairman says it’s going to be a slow return – but dismisses talk of a double dip.

Some believe that Bernanke's speech is effectively an acknowledgement that the Fed has few remaining tactics to use if the recovery stops.
Image: Alex Brandon/AP

THE CHAIRMAN OF THE United States Federal Reserve, Ben Bernanke, has admitted that the country’s economic recovery had slowed down – but was equivocal in dismissing any speculation of a potential double dip recession.

Earlier estimates of a 2.4% growth in the US economy this year have been revised downward in favour of a new projection of 1.6%, a growth Bernanke described as a “modest pace”.

Speaking at a Federal Reserve conference, Bernanke said the Fed was prepared to provide extra cash to the economy – but, crucially for some, didn’t fully indicate whether he thought such action would be necessary.

He said the Fed’s purchases of longer-term securities have been effective in lowering borrowing costs, and that the benefits of doing so again would outweigh the potential disadvantages.

Bernanke seemed to indicate that further long-term acquisitions would be more favourable to keeping interest rates low, or raising its inflation targets.

Treasuries prices fell in the immediate aftermath of the speech, with many investors having hoped that the Fed was on the verge of further investment in the market, while the Dow Jones also fell sharply but later went significantly higher.

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The Fed had indicated earlier this month that it would not be reducing its $2.05 trillion securities portfolio, but investors had been waiting to see whether this meant it was planning to expand the portfolio in the near future.

About the author:

Gavan Reilly

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