Fed boss Bernanke fails to signal more stimulus for 'fragile' American economy

The chairman of the Federal Reserve, Ben Bernanke, yesterday disappointed many in the financial markets by offering no hint that the US central bank is preparing more monetary stimulus.

Giving testimony before Congress, Mr Bernanke said growth in the world's largest economy had slowed and that the Fed is "prepared to take further action as appropriate" in order to support the US economy. But he failed to spell out what form that action could take, especially the possibility of more quantitative easing.

"Stimulus junkies wanted a clear sign of QE," said Joe Saluzzi of Themis Trading. "They didn't get it and the market dropped."

Yet other analysts said more asset purchases by the US central bank might yet materialise.

"Bernanke may just be playing for time and it's possible that he wasn't keen to discuss the prospects for QE3 with a potentially hostile audience," said Paul Ashworth, chief US Economist of Capital Economics.

Speculation has been growing that the Fed will ease monetary policy now that the Chinese and European central banks have cut interest rates and the Bank of England has increased its own bond buying scheme by £50bn.

Mr Bernanke said that recent data points to an annualised growth rate in the US of less than two per cent in the second quarter of 2012.

"Households remain concerned about their employment and income prospects and their overall level of confidence remains relatively low," he said. "Forward-looking indicators of investment demand – such as surveys of business conditions and capital-spending plans – suggest further weakness ahead."

Regarding the looming US "fiscal cliff", whereby fiscal policy will be automatically tightened by four per cent of GDP next year unless Democrat and Republican legislators can agree on a budget consolidation programme, Mr Bernanke warned of a "shallow recession" unless "fiscal decisions take into account long-term sustainability and the fragility of the recovery."

The jobless rate stands at 8.2 per cent in the US, the world's largest economy, and Mr Bernanke said progress on this would be "frustratingly low".