Transcript: Remarks by Federal Reserve Chairman Ben Bernanke on Sept. 13, 2012
Edited by Jenny Jiang
Transcript of remarks by Federal Reserve Chairman Ben Bernanke on Sept. 13, 2012:
“Earlier today, the Federal Open Market Committee approved new measures to support the recovery and employment growth.
“I’ll get to the specifics of our actions in a few moments but I will first describe the economic conditions that motivated the committee’s decision to take additional actions.
“As you know, the Federal Reserve conducts monetary policy under a dual mandate from Congress to promote maximum employment and price stability.
“The United States has enjoyed broad price stability since the mid-1990s and continues to do so today. The employment situation, however, remains a grave concern.
“While the economy appears to be on a path of a moderate recovery, it isn’t growing fast enough to make significant progress reducing the unemployment rate.
“Fewer than half of the 8 million jobs lost in the recession have been restored. And at 8.1%, the unemployment rate is nearly unchanged since the beginning of the year and is well above normal levels.
“The weak job market should concern every American. High unemployment imposes hardship on millions of people and it entails a tremendous waste of human skills and talents.
“Five million Americans have been unemployed for more than 6 months and millions more have left the labor force – many of them doubtless because they have given up on finding suitable work.
“As the skills of the long-term unemployed atrophy and as their connections to the labor market wither, they may find it increasingly difficult to get good jobs to their families’ costs of course but also to the detriment of our nation’s productive potential.
“To help bolster the recovery and promote price stability, the FOMC has provided unprecedented levels of policy accommodation in recent years.
“With our policy interest rate near its effective lower bound, we’ve been using two complementary tools to carry out monetary policy: balance sheet actions and forward guidance regarding how long we anticipate maintaining exceptional levels of policy accommodation.
“While providing the support, we’ve been prudent, carefully weighing the potential benefits and costs of each new policy action and recognizing that monetary policy, particularly in the current circumstances cannot cure all economic ills.
“The FOMC has taken several actions this year.
“In January, it extended its forward guidance, stating that it anticipated that the federal funds rate will remain near current levels until late 2014.
“In June, the committee decided to continue through the end of the year the previously established program to extend the average maturity of the securities it holds by buying longer-term securities and selling an equivalent amount of shorter-term securities.
“However, incoming data confirmed that the modest pace of growth continues to be inadequate to generate much progress on unemployment.
“With inflation anticipated to run at or below our 2% objective, the committee has become convinced that further policy accommodation is warranted to strengthen the recovery and support the gains we’ve begun to see in housing and other sectors.
“Accordingly, the FOMC decided today new actions, electing to expand purchases of securities and extend its forward guidance regarding the federal funds rate.
“Specifically, the committee decided to purchase additional agency mortgage-backed securities or MBS at a pace of $40 billion per month.
“The new MBS purchases, combined with the existing maturity extension program and the continued re-investment of principal payments from agency debt to agency MBS already on our balance sheet, will result in an increase in our holdings of long-term securities of about $85 billion each month for the remainder of the year.
“The program of MBS purchases should increase the downward pressure on long-term interest rates more generally but also on mortgage rates specifically, which would provide further support for the housing sector by encouraging home purchases and refinancing.
“The committee also took two steps to underscore its commitment to ongoing support for the recovery.
“First, the committee will closely monitor incoming information on economic and financial developments in coming months. And if we do not see substantial improvement in the outlook for the labor market, we will continue the MBS purchase program, undertake additional asset purchases, and employ our policy tools as appropriate until we do.
“We will be looking for the sort of broad-base growth in jobs and economic activity that generally signal sustained improvement in labor market conditions and declining unemployment.
“Of course, in determining the size, pace, and composition of any additional asset purchases we will as always take appropriate account of the inflation outlook and of their efficacy and costs.
“Additionally, the committee emphasized that it expects a highly accommodative stance in monetary policy to remain appropriate for a considerable time after the economic recovery strengthens. This should provide greater assurance to households and businesses that policy accommodation will remain even as the economy picks up.
“In particular, the committee today kept a target range of federal funds rate at 0% to 0.25% and stated that it anticipates that exceptionally levels for the federal funds rate are likely to be warranted at least through mid-2015.
“In conjunction with today’s meetings, FOMC participants – the 7 board members and 12 Reserve Bank presidents – submitted their individual economic projections and policy assessments for the years 2012 through 2015 and over the longer run.
“Committee participants’ projections for the unemployment rate in the 4th quarter this year have a central tendency of 8.0% to 8.2%, declining to 6.0% to 6.8% in the 4th quarter of 2015 – levels that remain somewhat above participants’ estimates of the longer-run normal rate of unemployment.
“Participants’ projections of inflation have a central tendency of 1.7% to 1.8% for this year and 1.8% to 2.0% through 2015.
“While the economy appears to be advancing at a moderate pace with some improvements appearing in housing, FOMC participants see an economic outlook that remains uncertain.
“The economy continues to face economic headwinds, including the situation in Europe; tight credit for some borrowers; and fiscal contraction at the federal, state, and local levels. In addition, strains in global financial markets continue to pose significant downside risks.
“Before I take your questions, I’d like to briefly address three concerns that have been raised about the Federal Reserve’s accommodative monetary policy.
“The first is the notion that the Federal Reserve’s securities purchases are akin to fiscal spending. The second is that a policy of very low rates hurts savers. The third is that the Federal Reserve’s policies risk inflation down the road.
“On the first concern, I want to emphasize that the Fed’s purchases of longer-term securities are not comparable to government spending. The Federal Reserve buys financial assets, not goods and services.
“Ultimately, the Federal Reserve will normalize its balance sheet by selling these financial assets back into the market or by allowing them to mature. In the interim, the Federal Reserve’s earnings from its holdings of securities are remitted to the Treasury.
“In fact, the odds are strong that the Fed’s asset purchase programs, both through their net interest earnings and by strengthening the overall economy, will help reduce rather than increase the federal deficit and debt.
“On the second concern, my colleagues and I are very much aware that holders of interest- bearing assets, such as certificates of deposit, are receiving very low returns. But low interest rates also support the value of many other assets that Americans own, such as homes and businesses large and small.
“Indeed, in general, healthy investment returns cannot be sustained in a weak economy, and of course it is difficult to save for retirement or other goals without the income from a job. Thus, while low interest rates do impose some costs, Americans will ultimately benefit most from the healthy and growing economy that low interest rates help promote.
“And finally, on inflation: Inflation has varied in recent years with swings in global food and fuel prices caused by a range of factors, such as drought and geopolitical tensions.
“However, overall inflation has averaged very close to the Committee’s goal of 2% per year for quite a few years now, and a variety of measures show that longer-term inflation expectations are quite stable.
“The Federal Reserve is fully committed to both sides of its mandate—to price stability as well as to maximum employment—and it has both the tools and the will to act at the appropriate time to avoid any emerging threat to price stability.
“Thank you. I would be happy to respond to your questions.”
- FederalReserve.gov: Economic projections materials (PDF)
- FederalReserve.gov: Press release on Sept. 13, 2012
- NewYorkFed.org: Statement Regarding Transactions in Agency Mortgage-Backed Securities and Treasury Securities