JACKSON HOLE, Wyo. (MNI) – The following is the fifth and final
section of the text of the remarks of Federal Reserve Chairman Ben
Bernanke prepared for his Jackson Hole address Friday morning:

Each of the tools that the FOMC has available to provide further
policy accommodation–including longer-term securities asset purchases,
changes in communication, and reducing the IOER rate–has benefits and
drawbacks, which must be appropriately balanced. Under what conditions
would the FOMC make further use of these or related policy tools? At
this juncture, the Committee has not agreed on specific criteria or
triggers for further action, but I can make two general observations.

First, the FOMC will strongly resist deviations from price
stability in the downward direction. Falling into deflation is not a
significant risk for the United States at this time, but that is true in
part because the public understands that the Federal Reserve will be
vigilant and proactive in addressing significant further disinflation.
It is worthwhile to note that, if deflation risks were to increase, the
benefit-cost tradeoffs of some of our policy tools could become
significantly more favorable.

Second, regardless of the risks of deflation, the FOMC will do all
that it can to ensure continuation of the economic recovery. Consistent
with our mandate, the Federal Reserve is committed to promoting growth
in employment and reducing resource slack more generally. Because a
further significant weakening in the economic outlook would likely be
associated with further disinflation, in the current environment there
is little or no potential conflict between the goals of supporting
growth and employment and of maintaining price stability.

Conclusion

This morning I have reviewed the outlook, the Federal Reserves
response, and its policy options for the future should the recovery
falter or inflation decline further.

In sum, the pace of recovery in output and employment has slowed
somewhat in recent months, in part because of slower-than-expected
growth in consumer spending, as well as continued weakness in
residential and nonresidential construction. Despite this recent
slowing, however, it is reasonable to expect some pickup in growth in
2011 and in subsequent years. Broad financial conditions, including
monetary policy, are supportive of growth, and banks appear to have
become somewhat more willing to lend. Importantly, households may have
made more progress than we had earlier thought in repairing their
balance sheets, allowing them more flexibility to increase their
spending as conditions improve. And as the expansion strengthens, firms
should become more willing to hire. Inflation should remain subdued for
some time, with low risks of either a significant increase or decrease
from current levels.

Although what I have just described is, I believe, the most
plausible outcome, macroeconomic projections are inherently uncertain,
and the economy remains vulnerable to unexpected developments. The
Federal Reserve is already supporting the economic recovery by
maintaining an extraordinarily accommodative monetary policy, using
multiple tools. Should further action prove necessary, policy options
are available to provide additional stimulus. Any deployment of these
options requires a careful comparison of benefit and cost. However, the
Committee will certainly use its tools as needed to maintain price
stability–avoiding excessive inflation or further disinflation–and to
promote the continuation of the economic recovery.

As I said at the beginning, we have come a long way, but there is
still some way to travel. Together with other economic policymakers and
the private sector, the Federal Reserve remains committed to playing its
part to help the U.S. economy return to sustained, noninflationary
growth.

(5 of 5)

** Market News International **

[TOPICS: M$$CR$,M$U$$$,MMUFE$,MGU$$$,MFU$$$]