Ben Bernanke makes case for Fed to take more action

— -- In a highly anticipated speech Friday, Federal Reserve Chairman Ben Bernanke Friday called "the stagnation of the labor market in particular a grave concern," reiterating that the Fed is prepared to do more to stimulate stronger growth.

"We must not lose sight of the daunting economic challenges that confront our nation," Bernanke said in a speech at the Kansas City Fed's annual symposium that attracts an elite group of global central bankers and prominent economists.

However, Bernanke may have disappointed Wall Street's hopes in giving no clear signal that the Fed will take action at its mid-September meeting. Yet, after having time to digest all of Bernanke's remarks, investors appear to have taken comfort in Bernanke's willingness to take action as needed.

In the speech, Bernanke said "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."

That language echoes the Fed's statement after its early August policy making meeting and reflects a stronger inclination than it had conveyed in previous statements to take action if the economy doesn't pick up noticeably.

Many economists believe the Fed likely will decide to buy more Treasury or mortgage-backed securities, possibly at its Sept. 12-13 meeting, to lower long-term interest rates and spark more economic activity. Alternatively, it could promise to keep short-term interest rates near zero longer.

Yet while Bernanke left the door open to such action soon, he stopped short of telegraphing the timing of any further action that many investors and Fed watchers were seeking.

"He essentially did lay out the case for doing more action," says Nigel Gault, chief U.S. economist for IHS Global Insight.

But while Bernanke appears to support more asset purchases, other member of the Federal Open Markets Committee have voiced varying views. "He's not going to ram it through," Gault adds.

At a meeting in Jackson Hole two years ago, Bernanke strongly hinted the Fed was poised to buy more Treasury bonds, a strategy that lowered rates well before the Fed actually voted two months later to purchase $600 billion in Treasuries.

A similar foreshadowing this year seemed possible. At its meeting early this month, many Fed policymakers determined that additional stimulus would be needed unless economic data "pointed to a substantial and sustainable strengthening in the pace of economic recovery," according to minutes of the meeting.

While growth remains subpar three years into the economic recovery, the latest round of economic reports have been mixed. In July, employers added a better-than-expected 163,000 jobs, consumer spending picked up and pending home sales climbed to the highest level in two years.

At the same time, manufacturing activity has weakened recently, consumer confidence in August fell to its lowest level in 10 months and second-quarter economic growth was revised up slightly last week to a still-tepid 1.7% annual rate.