By Vicki Needham - 08/31/12 02:30 PM EDT
Federal Reserve Chairman Ben Bernanke said Friday the central bank is ready to act if the economy, especially the labor market, fails to strengthen in the coming months.
Bernanke did not outline any specific, additional steps the bank will take to boost economic growth in his remarks from Jackson Hole, Wyo., but used direct language in stating the central back will take steps to "promote a stronger economic recovery."
Speculation the Fed will launch a new round of stimulus to help the economy has been raised over the summer amid signs of an economic slowdown. Such a move could have enormous implications for the presidential election, which hinges on which candidate voters think could best handle the economy.
Republican Mitt Romney accepted his party's presidential nomination on Thursday night, and argued President Obama has mishandled the economy. The GOP has hammered Obama over an unemployment rate that has been above 8 percent for almost all of the last four years.
Romney has also criticized Bernanke's actions on the economy, which the central bank chairman defended in his speech.
Bernanke said if the Fed had not held interest rates near zero, it seems "clear" the recession "would have been deeper and the current recovery would have been slower than has actually occurred."
"Over the past five years, the Federal Reserve has acted to support economic growth and foster job creation, and it is important to achieve further progress, particularly in the labor market," he said.
Bernanke called the rate of improvement in the labor market "painfully slow," and said that because economic growth in recent quarters has been tepid there has been no net improvement in the unemployment rate since January.
"The stagnation of the labor market in particular is a grave concern not only because of the enormous suffering and waste of human talent it entails, but also because persistently high levels of unemployment will wreak structural damage on our economy that could last for many years," he said.
Unless growth picks up pace, "the unemployment rate is likely to remain far above levels consistent with maximum employment for some time," he said.
Bernanke said job growth is being held back by the housing market; budget struggles at federal, state and local levels that have led to public sector cuts; and the difficulties small businesses and homeowners have in getting loans from banks.
He also said shaky financial markets continue to restrain the economy, including the fiscal situation in Europe.
"Some recent policy proposals in Europe have been quite constructive, in my view, and I urge our European colleagues to press ahead with policy initiatives to resolve the crisis," he said.
Bernanke also cited the possible expiration of the Bush tax rates, automatic spending cuts set to be triggered in January and the need to raise the debt ceiling as adding to uncertainty in the economy.
Though he said the "magnitudes of these effects are hard to judge," he emphasized "it is critical that fiscal policymakers put in place a credible plan that sets the federal budget on a sustainable trajectory in the medium and longer runs."