The Grand Tetons from Jackson Lake Lodge, Grand Teton National Park, Wyoming. Photo: tripadvisor

Federal Reserve chairman, Ben Bernanke, suggested on Friday at the Fed's annual economic symposium at Jackson Hole, Wyoming, that bolder steps maybe taken by the central bank if the US economy continues to falter. However, he warned that central bankers "alone cannot solve the world's economic problems."  Meanwhile, European Central Bank president, Jean-Claude Trichet said postponing cuts in public and private sector debts would be “very dangerous” and risks a Japanese-style “lost decade."

Also on Friday, revised US gross domestic product (GDP) - - the value of all goods and services produced in the economy - - was reported by the Bureau of Economic Analysis, to have grown at an annualized rate of 1.6% from April to June, compared with the first estimate a month ago, of 2.4% after a 3.7% expansion in the first quarter.

"The pace of recovery in output and employment has slowed somewhat in recent months,"  Bernanke said in his speech at Jackson Lake Lodge in Grand Teton National Park, with a majestic view of the 13,770-foot peak of Mount Teton. The chairman said that growth will pick up in 2011, boosted by in part by consumers who have improved their household finances. However, he also said the Fed would respond if that forecast is wrong and growth continues to falter, and expressed confidence that its efforts would work.

He outlined four options the Fed could deploy to boost the economy. The main one is the resumption of a program of long-term securities purchases by the Fed (pumping money into the economy), which could help to push down long-term interest rates. The Fed has already cut its short-term interest rates to almost zero.

The second option would be to lower the interest rate banks get for reserves they keep with the Fed. He also said the Fed could promise to keep short-term interest rates low for a longer period than markets currently expect. A final option, which Bernanke ruled out, would be to raise the Fed's inflation target to more than 2%, from its current informal target of 1.5% to 2%.

Bernanke said that there was no support within the Fed to increase its medium-term inflation goals above levels consistent with price stability.

“Such a step might make sense in a situation in which a prolonged period of deflation had greatly weakened the confidence of the public in the ability of the central bank to achieve price stability, so that drastic measures were required to shift expectations,” Bernanke said. In the short term, Bernanke said that preconditions for a pick-up in growth in 2011 “appear to remain in place”.

The buzz in Jackson Hole following the Fed chairman's speech, with Greg Ip, The Economist; Neil Irwin, Washington Post and CNBC's Steve Liesman:

In his speech, Jean-Claude Trichet said some commentators, had proposed to ignore financial imbalances “for the time being” to focus only on the short term, in the hope that more spending would support growth. “I believe that adopting this view would be very dangerous for our economies. There is a very clear example of the consequences of choosing to live with the debt: Japan in the 1990s.

Trichet said: "The debt overhang bears the ultimate responsibility for slowing down the economic recovery. Left with the need to reduce their debts and accumulate more assets, households have significantly increased their saving rates, leading to protracted sluggishness in the growth of private consumption. The key lesson of history is that sustainable, longer-term growth can only be ensured once fundamental economic imbalances are treated."

He considered the options of inflation or living with debt and said: "You will not be surprised to know that I exclude any kind of debt repudiation in the industrialized countries from these options."

The ECB president argued that the "lesson from past history is that dealing with the legacy of accumulated imbalances is not simply a duty to be fulfilled after the economic recovery, but rather an important precondition for sustaining a durable recovery. The primary macroeconomic challenge for the next 10 years is to ensure that they do not turn into another 'lost decade.'"

He concluded: "I am convinced that, together, we will surmount the difficulties our economies are experiencing and that the G20 strategy for strong, sustainable and balanced growth will be successful. The central banks will continue to prove their capacity to preserve price stability in the next ten years as they have done in a remarkable way over the past ten years, despite all difficulties. That being said, I am equally convinced that the next ten years will continue to present many new and unexpected challenges."

Axel Weber, president of the Deutsche Bundesbank, joined CNBC from Jackson Hole:

Bank of England deputy governor, Charlie Bean, said in a presentation that most discussion of so-called macroprudential tools has centered on introducing a procyclical capital buffer. This would require banks to build up extra reserves during a boom, which could be drawn on in a bust.

He added that direct constraints could also be imposed on the terms or availability of credit, for example via maximum loan-to-value ratios in the mortgage market. Macroprudential tools aim to make swings in the financial cycle less extreme and to limit systemic risk.

Credit or asset-price booms tend to involve an excessive shift into riskier forms of lending, which may occur outside the regulated banking system in the wider credit markets, Bean said.

"In that case, varying margin requirements might be a more appropriate instrument for dealing with vulnerabilities building up in the capital markets more generally," he said.