Ben Bernanke, the chairman of the Federal Reserve, helped the US stock market break a three day sell-off yesterday by raising the possibility of a further round of quantitative easing to support the economy.
His semi-annual testimony to the House of Representatives Financial Services Committee included an explicit mention of the idea for the first time, though he couched it as one of a number of options available to the Fed should the recovery stall further.
Mr Bernanke restated his view that the slowdown was the result of temporary factors such as manufacturing supply disruptions after the tsunami in Japan, but said the Fed would study new plans for stimulus in case the outlook worsened. "One option would be to provide more explicit guidance about the period over which the federal funds rate and the balance sheet would remain at their current levels," he said, referring to the Fed's current zero-interest rate policy and the more than $2trn (£1.2trn) the central bank has already pumped into the credit markets.
"Another approach would be to initiate more securities purchases or to increase the average maturity of our holdings... Prudent planning requires that we evaluate the efficacy of these and other potential alternatives for deploying additional stimulus if conditions warrant."
Mr Bernanke's testimony also put pressure on lawmakers to resolve the impasse over the federal government's debt ceiling. The government will run out of money on 2 August.