BERNANKE ON: Housing, Rates, Jobs, QE
Below are some highlights from Fed chairman Ben Bernanke’s post FOMC meeting press conference today. I’ve paraphrased unless in quotes.
–ON HOUSING: Housing continues to be a headwind for economic recovery.
–ON UNEMPLOYMENT: Labor market conditions are ok. Unemployment has fallen nearly 1% since August, but it’s still elevated. 7.8 to 8 projections for this year.
–ON INFLATION: Inflation up mostly because of gas prices, and Fed thinks this is temporary. We think inflation will run at or below 2% through 2013. “Does it make sense to actively seek a higher inflation rate in order to achieve a slightly increased pace of reduction in the unemployment rate? The view of the committee is that that would be very reckless.” (Krugman has more on this)
–ON DURATION OF LOW RATES: These economic conditions will warrant highly accommodative stance of monetary policy through 2014. This highly accommodative policy includes near-zero overnight rates and also potential asset purchases.
–ON DEFINITION OF “EXCEPTIONALLY LOW” RATES: Greg Ip from The Economist asked: does “exceptionally low” Fed Funds Rates mean 1% or does it mean near 0% like we have now? Bernanke mostly dodged question, not giving a precise number, but when pressed he did say: “something close to where we are now” which is near-zero. Remember: Fed Funds Rate is an overnight bank-to-bank lending rate, NOT a consumer rate. But lots of consumer rates in the economy are influenced by the Fed Funds Rate.
–ON POSSIBILITY OF MORE QE: FOMC has been bold and aggressive in policy. We’ve had near-zero low overnight rates, two rounds of QE, and Operation Twist (which is a program to shift Fed debt into longer maturities). We remain entirely prepared and will not hesitate to use these measures as economic conditions warrant.
–ON U.S. vs. JAPAN: The difference between Japan 15 years ago and US today is that they were in deflation. We are not in deflation right now. We’re close to our 2% inflation target.
–UNDERSTATEMENT OF THE CENTURY (ON FISCAL POLICY): I’m hoping that Congress will take appropriate fiscal action. (See link below for what he should have said on fiscal policy)
–ON EUROPE: A portion of the improvement we saw in Europe/U.S. markets late last year has been reversed. Spain and Italy are real risks. Europeans have made substantial progress with LTRO, Greek deal, and setting up of a larger firewall to prevent contagion. Bernanke was clever on this topic (meaning not terribly specific so as not to incite panic) but FOMC policy stance obviously accounts for this even if their statements aren’t fully explicit.
–ON FED TRANSPARENCY: Trying to communicate with markets and also average citizens. We think we’ve done a good job giving markets greater certainty on what the Fed intends to do.
–BERNANKE’S MOST FRUSTRATING PROBLEM: Most frustrating aspect of recovery is that it’s been quite slow. We’re three years into recovery and unemployment is still 8%. It’s been a very long slog. That’s the single most concerning thing. The fiscal issues are a giant problem, but that’s not the Fed, that’s Congress.
–Fed GDP, unemployment, inflation projections (Tables/Charts by CalculatedRisk)
–April 25 & March 13 FOMC statements side by side.