Speaking at the Federal Reserve Bank of Kansas City Economic Symposium in Jackson Hole, Wyo., Bernanke said the U.S. economy faces "daunting" challenges, five years after "significant financial stresses first emerged" in August 2007.
"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.
"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," Bernanke said. "Taking due account of the uncertainties and limits of its policy tools, the Federal Reserve will provide additional policy accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability."
The Fed chairman said "a number of headwinds" are responsible for the slow recovery from the most severe economic downturn since the Great Depression -- including persistently low levels of activity in the housing market, budget restrictions and spending cuts at the federal and state level, and "stresses in credit and financial markets."
"Earlier in the recovery, limited credit availability was an important factor holding back growth, and tight borrowing conditions for some potential homebuyers and small businesses remain a problem today," he said. "More recently, however, a major source of financial strains has been uncertainty about developments in Europe. These strains are most problematic for the Europeans, of course, but through global trade and financial linkages, the effects of the European situation on the U.S. economy are significant as well."
Minutes of the Federal Open Market Committee August meeting, released last week, indicated members of the policy making committee "judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery."