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Recovery on the skids

Fed Reserve Chairman Ben Bernanke, left, and Donald L. Kohn, governor of the Federal Reserve Bank of Dallas, walked along the veranda of the Jackson Lake Lodge with the Grand Tetons in the distance Friday at the start of the annual Federal Reserve conference in Jackson, Wyo.
Fed Reserve Chairman Ben Bernanke, left, and Donald L. Kohn, governor of the Federal Reserve Bank of Dallas, walked along the veranda of the Jackson Lake Lodge with the Grand Tetons in the distance Friday at the start of the annual Federal Reserve conference in Jackson, Wyo. AP

WASHINGTON — The U.S. economy grew at a slower pace during the second quarter of this year than first estimated, the government reported Friday, another indication that the recovery is losing steam and one that prompted Federal Reserve Chairman Ben Bernanke to pledge new action if the economy deteriorates further.

Although the Commerce Department's first estimate of growth from April through June had been 2.4 percent, the agency revised that number Friday to 1.6 percent. That suggests that the slowdown from a strong 3.7 percent growth in the first three months of this year was more pronounced than had been thought. The agency attributed the revision to stronger-than-anticipated growth in imports, which partially reduced domestic growth.

The Commerce Department's revision came hours before a much-anticipated speech by Bernanke on his outlook amid darkening views of the economy.

Speaking at the Fed's annual gathering in the Wyoming town of Jackson Hole, Bernanke restated in a detailed 20-page speech that the Fed's rate-setting Federal Open Market Committee still anticipates growth. He also indicated that he isn't ready to take new aggressive actions until there are clearer signs of economic deterioration.

"We will continue to monitor economic developments closely and to evaluate whether additional monetary easing would be beneficial. In particular, the committee is prepared to provide additional monetary accommodation through unconventional measures if it proves necessary, especially if the outlook were to deteriorate significantly," Bernanke said.

While the Fed thinks it has the tools to act, most steps that can be taken carry costs, and it isn't always clear that the actions will do more good than harm, he cautioned.

"The issue at this stage is not whether we have the tools to help support economic activity and guard against disinflation. We do. ... The issue is instead whether, at any given juncture, the benefits of each tool, in terms of additional stimulus, outweigh the associated costs or risks of using the tool."

Bernanke cautioned that the benefits of his monetary policy are powerful but limited, and he made no recommendations on whether Congress should pass a new stimulus for the economy, new tax cuts or deficit reductions.

The Fed continues to have a more optimistic view on growth than mainstream forecasters do, projecting growth this year of 3 percent to 3.5 percent, and next year from 3.5 percent to 4.2 percent.

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