Fed's Bernanke says it's up to Congress to boost the economy

Federal Reserve Chairman Ben Bernanke did not announce any new measures to stimulate the economy in a highly anticipated speech on Friday, instead saying it's up to Washington to deal with the nation's flagging growth.

Bernanke reiterated that the Fed has a number of tools it could use to further boost the economy via monetary policy, but said the broader problems plaguing the economy are out of the bank's reach.

"Most of the economic policies that support robust economic growth in the long run are outside the province of the central bank," he said from a conference hosted by the Kansas City Fed in Jackson Hole, Wyo.

Bernanke's speech came a little over an hour after new data showed the nation's economy grew just 1 percent in the second quarter of the year, down from an original estimate of 1.3 percent. Economists say the nation's gross domestic product must grow by at least 3 percent to bring down the unemployment rate.

While making clear that policymakers have the primary responsibility for the economy now, he said the Fed will further consider its options at its September meeting. He noted that session had been expanded from one day to two to allow for a "fuller discussion."

"The committee will continue to assess the economic outlook in light of incoming information and is prepared to employ its tools as appropriate to promote a stronger economic recovery in a context of price stability," he said.

Bernanke took Washington to task, saying lawmakers and the White House need to find a way to broadly address the nation's finances, which threaten to "spiral out of control" without major alterations.

He also chastised lawmakers for their eleventh-hour dramatics over raising the debt limit. 

"The country would be well served by a better process for making fiscal decisions," he said. "The negotiations that took place over the summer disrupted financial markets and probably the economy as well, and similar events in the future could, over time, seriously jeopardize the willingness of investors around the world to hold U.S. financial assets or to make direct investments in job-creating U.S. businesses."

He said the debt-limit fight and the historic downgrade of the nation's credit rating by Standard & Poor's shortly thereafter have hurt confidence in the United States and its potential for growth.

"It is difficult to judge by how much these developments have affected economic activity thus far, but there seems little doubt that they have hurt household and business confidence and that they pose ongoing risks to growth," he said.

He called for productive work from Washington to change the nation's fiscal picture.

"Policymakers must work to promote macroeconomic and financial stability; adopt effective tax, trade and regulatory policies; foster the development of a skilled workforce; encourage productive investment, both private and public; and provide appropriate support for research and development and for the adoption of new technologies," he said.

He also said the government's tax and spending policies need to maximize the ability of the economy to grow.

"Our nation's tax and spending policies should increase incentives to work and to save, encourage investments in the skills of our workforce, stimulate private capital formation, promote research and development, and provide necessary public infrastructure," he said. "We cannot expect our economy to grow its way out of our fiscal imbalances, but a more productive economy will ease the tradeoffs that we face."

As he had in the past, Bernanke warned that while these steps are needed, it should not be done hastily in a way that endangers the current tenuous recovery.

"Although the issue of fiscal sustainability must urgently be addressed, fiscal policymakers should not, as a consequence, disregard the fragility of the current economic recovery," he said.

Bernanke acknowledged that the economic recovery has stalled of late.

"It is clear that the recovery from the crisis has been much less robust than we had hoped," he said. "The recession was even deeper and the recovery even weaker than we had thought."

And while he has consistently pointed to temporary factors like the fallout from the disaster in Japan as weighing on the economy, he acknowledged Friday that those passing obstacles "can account for only a portion of the economic weakness that we have observed."

Nonetheless, he maintained an overall confident tone about the long-term picture of the nation's economy — assuming Washington gets the job done.

"I do not expect the long-run growth potential of the U.S. economy to be materially affected by the crisis and the recession if — and I stress if — our country takes the necessary steps to secure that outcome," he said. "The U.S. economy remains the largest in the world, with a highly diverse mix of industries and a degree of international competitiveness that, if anything, has improved in recent years.

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