August 27, 2010 – 10:00 a.m. CT

Ben Reassures Fed Will Do More (If Needed)

Fed Chairman Ben Bernanke laid out the Fed's options, should the economy continue to disappoint on the downside, in his remarks at the Kansas City Fed meeting in Jackson Hole, Wyoming this morning. Most notably, the Fed could increase its asset purchases, beyond treasury bonds, and expand the size of its balance sheet again.

What would it take to get the Fed to act? Another bad employment report or any further deceleration in the rate of inflation, both of which are extremely likely.

The Chairman was clear in both his overt remarks and his body language that although the Federal Open Market Committee (FOMC) does not have a consensus view about what to do in these uncertain and unchartered waters, he was willing to do something rather than nothing. The Board of Governors, in particular, has an ability to act without the approval of the full FOMC and Federal Reserve Presidents. I would not rule out an independent move by the Board of Governors to further stimulate given the unprecedented differences of opinion that many Fed Presidents have with the Chairman about the course of policy going forward.

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