Ben Bernanke, chairman of the U.S. Federal Reserve Board, insists that the Fed stands ready to boost its support to the U.S. economy if the recovery falters.

Speaking at the Federal Reserve Bank of Kansas City’s Economic Symposium in Jackson Hole, Wy. Friday, Bernanke observed that at this time last year it looked as though the recession was over. However, now it appears that, “for much of the world, the task of economic recovery and repair remains far from complete.”

“In many countries, including the United States and most other advanced industrial nations, growth during the past year has been too slow and joblessness remains too high,” he said.

“Financial conditions are generally much improved, but bank credit remains tight; moreover, much of the work of implementing financial reform lies ahead of us. Managing fiscal deficits and debt is a daunting challenge for many countries, and imbalances in global trade and current accounts remain a persistent problem.”

Bernanke noted that the apparent recovery was stoked by expansionary fiscal policies and a powerful inventory cycle, a recovery in international trade and improved financial conditions. However, he added that these factors can only drive recovery temporarily. “For a sustained expansion to take hold, growth in private final demand — notably, consumer spending and business fixed investment — must ultimately take the lead,” he said.

And, while he noted that the process appears to be underway, growth in private demand, output, and employment has been “somewhat less vigorous than we expected.”

“Overall, the incoming data suggest that the recovery of output and employment in the United States has slowed in recent months, to a pace somewhat weaker than most FOMC participants projected earlier this year. Much of the unexpected slowing is attributable to the household sector, where consumer spending and the demand for housing have both grown less quickly than was anticipated. Consumer spending may continue to grow relatively slowly in the near term as households focus on repairing their balance sheets. I expect the economy to continue to expand in the second half of this year, albeit at a relatively modest pace,” he said.

Looking into 2011, Bernanke suggested that he expects the recovery to gather steam, but he also spelled out some additional policy options that the Fed could consider, “especially if the economic outlook were to deteriorate further.”

Among the possible unconventional policy courses the Fed could take, he pointed out that it could change its reinvestment strategy (at the last Fed meeting it decided to maintain the size of its investment portfolio). It could also: conduct additional purchases of longer-term securities; commit to low rates for a specific time period as the Bank of Canada did; and, reduce the interest paid on excess reserves.

Bernanke said that he believes additional purchases of longer-term securities “would be effective in further easing financial conditions,” but that the strategy would have to be weighed against possible risks, including the risk of further balance sheet expansion.

An even more unconventional option, he said, would be for the Fed to increase its medium-term inflation goals above levels consistent with price stability. However, he said that there’s no support for this option on the FOMC.

Bernanke reiterated that the Fed stands ready to act, both to avert deflation, and to ensure economic recovery.

“We will continue to monitor economic developments closely and to evaluate whether additional monetary easing would be beneficial. In particular, the Committee is prepared to provide additional monetary accommodation through unconventional measures if it proves necessary, especially if the outlook were to deteriorate significantly,” he said.

IE