Bernanke wary of slowdown yet drops no QE hint

Julian Harris
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AMERICA’S sluggish economic recovery is worrying the Federal Reserve, its chairman Ben Bernanke told politicians in Washington DC yesterday, yet he remained guarded over prospects for more quantitative easing (QE3).

Bernanke predicted that any reduction in the US unemployment rate – which remains above eight per cent – would be “frustratingly slow”.

“Economic activity appears to have decelerated somewhat during the first half of this year,” he told Congress on the first day of a testimony that will conclude this afternoon.

The last bout of asset purchases (QE2) “contributed to economic growth”, Bernanke argued, also acknowledging that “economists differ on how effective the tools have been”.

Yet the Fed chief added that unconventional monetary tools “should not be used lightly” and refused to suggest that they are about to deliver QE3. Stocks, copper, oil and gold all sank as investors reacted to Bernanke’s words.

The debt crisis in the Eurozone threatens to drag on with policy makers “muddling-through”, Bernanke added.