Federal Reserve Chairman Ben Bernanke leaned on Congress on Friday to do more to promote hiring and growth, or risk delaying the economy's return to full health.
Bernanke proposed no new steps by the Fed to boost the economy. But at a time when Congress has been focused on shrinking long-run budget deficits, he warned lawmakers not to "disregard the fragility of the current economic recovery."
Bernanke, who spoke at an annual economic conference in Jackson Hole, left open the possibility that the Fed will take further steps to strengthen the economy. He said its September policy meeting will be held over two days, instead of just one, to allow for a "fuller discussion."
But analysts said the speech provided no assurances of any new help from the Fed.
"He appears to be saying that the Fed has largely played its part and that the politicians need to step up their game," said Paul Dales, senior U.S. economist at Capital Economics.
Stocks fell after the speech was released but then recovered. The Dow Jones industrial average rose about 150 points in early-afternoon trading as traders responded to Bernanke's judgment that the job market and the economy would return to full health in the long run.
Bernanke's speech followed news that the economy grew more slowly in the April-June quarter than previously estimated - a meager 1 percent annual rate.
Some economists worry that Europe's financial crisis, along with persistently weak U.S. job growth and falling home prices, could tip the economy into another recession. Those fears have pulled down stock prices in the past month. The Dow has lost 12 percent of its value since late July.
The sell-off on Wall Street was triggered Congress's battle over raising the debt ceiling. In his speech, Bernanke criticized lawmakers for their handling of the issue and warned that further standoffs could hurt the economy in the long run.
A plan Congress passed this month means annual deficits are expected to be reduced by $3.3 trillion over the next decade through spending cuts.
The Fed chairman said long-term deficit reduction is necessary. But he said that future economic health could be jeopardized if hiring and growth are not strengthened now.
Analysts noted the lack of new proposals in Bernanke's speech.
But Aneta Markowska, senior U.S. economist at Societe Generale, said the extension of the Fed's September meeting to two days might suggest something new could be unveiled.
Many have looked with anticipation to the Fed to do more. It has already kept short-term interest rates near zero for 2 1/2 years. And earlier this month, it said it would keep them there through mid-2013.
"I'm a little fearful that there are a lot of expectations built in that I don't think Bernanke can deliver on," said Jack Ablin, chief investment officer at Harris Private Bank.
To promote growth, Bernanke said the government must pursue tax, trade, and regulatory policies that encourage economic health.
The approach of this year's Jackson Hole conference raised expectations. In last year's speech, Bernanke signaled that the Fed might unveil a Treasury-buying plan to help lower long-term rates. In November, the Fed announced a $600 billion such program. The bond purchases were intended to lower long-term rates, lift stock prices and spur more spending.
Immediately afterward, stock prices started rising and continued up until May, when they leveled out.
Still, critics, from congressional Republicans to some Fed officials, have raised concerns that the Fed's Treasury purchases could ignite inflation and speculative buying on Wall Street, while doing little to aid the economy.
Others have wondered whether any further lowering of long-term rates is needed. Investors seeking the safety of U.S. debt have forced down the yield on the 10-year Treasury note to 2.19 percent - a full point lower than it was when the Fed completed its Treasury purchases about two months ago. Yet the economy is still sputtering.
The Congressional Budget Office this week estimated that the unemployment rate will hover around 8.5 percent when President Barack Obama seeks re-election next year. And it predicts that unemployment will stay above 8 percent through 2013.
That continued weakness is why many speculated that the Fed would still embark on some new plan to help the economy. They note that while inflation has risen, it's still within the Fed's target range.
At their meeting earlier this month, Bernanke said policymakers discussed the "relative merits and costs" of further steps to spur growth. Clues to where the Fed is leaning might be found in those meeting's minutes, which will be released Tuesday.
"There could be more action, but we're in treacherous waters right now," said John Silvia, Wells Fargo's chief economist. "What he's doing is making small moves."
Many economists note, however, that the economy's main problem is not that interest rates are too high. They say the main problem is that consumer spending remains too weak. So businesses feel little incentive to hire, expand and invest.
Until demand for goods and services steps up, the Fed may have limited ability to strengthen the economy.
Joshua Shapiro, an economist at MFR Inc., said that by dwelling on budget and tax issues facing Congress, Bernanke was conceding that the Fed has "basically exhausted its tools."
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