Fed Wants Priority Put On Deficit

“Monetary policy cannot be a panacea,” the Fed’s chairman, Ben S. Bernanke, told an audience of bankers Tuesday in Atlanta.

He said that growth remained slow and uneven, but he made no mention of the possibility that the Fed would intervene, noting instead that “a healthy economic future” required a plan to shrink the federal deficit.

William C. Dudley, one of Mr. Bernanke’s top lieutenants, expanded on the same theme Tuesday night, saying that the government needed to balance its books, and that the nation needed to reduce its dependence on borrowing and consumption.

“These are fundamentally structural issues — not cyclical issues; they cannot be tackled primarily through monetary policy,” Mr. Dudley, the president of the Federal Reserve Bank of New York, said in a speech at a Midtown Manhattan hotel. “Instead, monetary policy is mainly a tool for stabilizing the macroeconomy and keeping inflation expectations well anchored.”

Both men emphasized that the Fed had played an important role in helping the economy to recover. And both defended the need for continuation of a series of extraordinary policies meant to encourage growth, including holding interest rates to near zero and maintaining a large portfolio of investments. But the speeches, together with remarks by other Fed officials, signaled that additional interventions were, for now, very unlikely.

The Fed will conclude the planned purchase of $600 billion in Treasury securities at the end of June.

Investors ready to celebrate any sign the Fed might pump more money into the economy sold equities as Mr. Bernanke spoke. The Standard Poor’s 500-stock index ended down slightly after climbing almost 2 percent earlier in the day.

Mr. Benanke’s speech followed related remarks by President Obama, who told reporters Tuesday that he was worried about the rate of growth, but saw no possibility of another recession.

“I am concerned about the fact that the recovery that we’re on is not producing jobs as fast as I want it to happen,” Mr. Obama said. The economy has moved in recent months like a car in heavy traffic, gaining and then slowing, faster again and then suddenly hitting the brakes.

Despite those fluctuations, Mr. Bernanke said Tuesday that he remained confident that the pace of growth was likely to increase during the second half of the year.

He also said that he continued to see no evidence of broad and enduring inflation despite increases earlier this year in the prices of oil and other commodities.

“Over all, the economic recovery appears to be continuing at a moderate pace, albeit at a rate that is both uneven across sectors and frustratingly slow from the perspective of millions of unemployed and underemployed workers,” Mr. Bernanke told the International Monetary Conference, a gathering of bank executives.

Mr. Bernanke made clear that recent data had shaken his confidence in the strength of the recovery, which continues to depend on extensive federal support. Mr. Bernanke has said he wants to see evidence of strong and sustained hiring by private firms before deciding that the economy can withstand the loss of that support. On Tuesday, he said that “until we see a sustained period of stronger job creation, we cannot consider the recovery to be truly established.”

The economy has expanded much more slowly this year than the Fed had predicted. Last month private employers added only 83,000 jobs, reducing the average so far this year to about 180,000 jobs a month — barely enough to cut into the numbers of the jobless.

Mr. Bernanke noted that after two years of economic recovery, the net decline in one important measure, aggregate hours worked, remained greater than the peak decline in the same measure during the deep recession in 1981-82.

The Fed has invested more than $2 trillion in a range of unprecedented programs, first to restore the financial system and then to encourage economic expansion. Mr. Bernanke has argued that the policies achieved worthwhile but limited objectives. Internal and external critics, however, describe the results as lackluster and warn that the policies could make it more difficult for the Fed to control inflation.

Those critics have taken a toll. So has internal debate about the efficacy of additional stimulus, which already seems to be yielding diminishing returns. So the Fed’s focus has turned to advocating for broader solutions to broader problems.

“Policy makers urgently need to put the federal governments’ finances on a sustainable trajectory,” Mr. Bernanke said. Such a plan should not impose large spending cuts immediately, he cautioned, but it could produce immediate benefits “by leading to lower long-term interest rates and increased consumer and business confidence.”

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