Bernanke Press Conference Notes

posted in: Notes | 0

Quotes from the transcript of yesterday’s press conference

“As I have noted frequently, the economic conditions we have set out as preceding any future rate increase are thresholds, not triggers”

“Thus, the first increases in short-term rates might not occur until the unemployment rate is considerably below 6-1/2 percent”

“Our program of asset purchases was set up a year ago to help achieve a substantial improvement in the outlook for the labor market”

“We could begin later this year. But even if we do that, the subsequent steps will be dependent on continued progress in the economy. So we are tied to the data, we don’t have a fixed calendar schedule, but we do have the same basic framework”

“The criterion for ending the asset purchases program is a substantial improvement in the outlook for the labor market.”

“last month, the decline in unemployment rate came about more than entirely because declining participation, not because of increased jobs. So, what we will be looking at is the overall labor market situation, including the unemployment rate, but including other factors as well. But in particular, there is not any magic number that we are shooting for. We’re looking for overall improvement in the labor market.”

“the large majority of [FOMC members] estimate that the appropriate target of the federal funds rate at the end of 2016 will be around 2 percent even though, at that time, the economy should be close to full employment according to our best projections. The reason for that, there may be possibly several reasons, but we did discuss this in the Committee today. The primary reason for that low value is that we expect that number of factors including the slow recovery of the housing sector, continued fiscal drag, perhaps continued effects from the financial crisis may still prove to be headwinds to the recovery. And even though, we can achieve full employment, doing so will be done by using rates lower than sort of the long-run normal. So in other words, in economics terms, the equilibrium rate, the rate that achieves full employment looks like it will be lower for a time because of these headwinds that will be slowing aggregate demand growth”

“I imagine it would take a few more years after that to get to the 4 percent level. I couldn’t be much more precise in that than we were already obviously stretching the bounds of credibility to talk about specific projections to 2016. But I think, you would expect to see the rates would gradually rise for the two or three years after 2016 and ultimately get to 4 percent”

“it’s important to recognize though that what monetary policy affects is not the potential rate of growth, long run rate of growth, but rather the cyclical part, the deviation of output and employment from its normal level”

“I don’t recall stating that we would do any particular thing in this meeting.”

“We try our best to communicate to markets–we’ll continue to do that–but we can’t let market expectations dictate our policy actions.”

“a factor that did concern us as in our discussion was some upcoming fiscal policy decisions…That being said, you know, again, our ability to offset these shocks is very limited.”

“Well, on the effectiveness of our asset purchases, it’s difficult to get a precise measure.There’s a large academic literature on this subject, and they have a range of results, some suggesting that this is a quite powerful tool, some that it’s less powerful. My own assessment is that it has been effective. If you look at the recovery, you see that some of the strongest sectors, the leading sectors like housing and autos, have an interest sensitive sectors”

“Labor market indicators, while still not where we’d like them to be, are much better today than they were when we began this latest program a year ago. And importantly, as actually is referenced in our FOMC statement, that happened notwithstanding a set of fiscal policies which the CBO said would cost between one and one and a half percentage points of real growth and hundreds of thousands of jobs. So, the fact that we have maintained improvements in the labor market that are as good or better than the previous year, notwithstanding this fiscal drag, is some indication that there is at least a partial offset from monetary policy.”

“I think people don’t fully appreciate that we have two tools: We have asset purchases and we have rate policy and guidance about rates. It’s our view that the latter, the rate policy, is actually the stronger, more reliable tool. And when we get to the point where we can, you know, where we are close enough to full employment, that
rate policy will be sufficient, I think that we will still be able to provide–even if asset purchases have reduced–we will still be able to provide a highly accommodative monetary background that will allow the economy to continue to grow and move towards full employment.”

“we do want to see the effects of higher interest rates on the economy, particularly in mortgage rates on housing”

“there are a number of ways in which the forward guidance could be strengthened. For example, Mr. Craig mentioned the inflation floor. There are other steps that we could take. We could provide more information about what happens after we get the 6.5 percent and those sorts of things, and to the extent that we could provide precise guidance, I think, that would be desirable.”

“our economy is becoming more unequal. The more, very rich people and more people in the lower half who are not doing well, these are–there’s a lot of reasons behind this trend…it’s important to address these trends but the Federal Reserve doesn’t really have the tools to address these long run distributional trends.

“It is true that changes in longer-term interest rates in the United States–but also in other advanced economies–does have some effect on emerging markets…a stronger U.S. economy is one of the most important things that could happen to help the economies of emerging markets”