Transcript: Press briefing remarks by Federal Reserve Chairman Ben Bernanke announcing the continuance of asset purchase program – Sept. 18, 2013
Partial transcript of press briefing remarks by Federal Reserve Chairman Ben Bernanke on Sept. 18, 2013:
Good morning. The Federal Open Market Committee concluded a two-day meeting earlier today. As you know from our statement, the decided today to keep the target range for the federal funds rate at 0% to 0.25% and to make no change in either its asset purchase program or its forward guidance regarding the federal funds rate target.
I’ll discuss the rationales for our decisions in a moment.
Economic growth has generally been proceeding at a moderate pace with continued, albeit somewhat uneven, improvements in labor market conditions.
Of course, to say that the job market has improved does not imply that current conditions are satisfactory.
Notably at 7.3%, the unemployment rate remains well above acceptable levels. Long-term employment and under-employment remain high, and we have seen ongoing declines in labor force participation, which likely reflects discouragement on the part of many potential workers as well as longer influences such as the aging of the population.
In committee’s assessment, the downside risks to growth have diminished on net over the past year, reflecting among other factors somewhat better economic and financial conditions in Europe and increased confidence on the part of households and firms in the staying power of the U.S. recovery.
However, the tightening of financial conditions observed in recent months – if sustained – could slow the pace of improvement in the economy and the labor market.
In addition, federal fiscal policy continues to be an important restraint on growth and a source of downside risk.
Apart from some fluctuations due primarily to changes in oil prices, inflation has continued to run below the committee’s 2% longer-term objective. The committee recognizes that inflation persistently below its objective could pose risks to economic performance. We will continue to monitor inflation developments closely.
However, the unwinding of some transitory factors has led to moderately higher inflation recently as expected. And with longer-term inflation expectations well-anchored, the committee anticipates that inflation will gradually move back toward 2%.
In conjunction with this meeting, the 17 participants in our policy discussions – 5 board members and 12 reserve bank presidents – submitted individual economic projections. As always, each participant’s projections are conditioned on his or her own view of appropriate monetary policy.
Also at this meeting, we extended the horizon of our projections through 2016.
Generally, the projections of individual participants show that they continue to expect moderate economic growth picking up over time as well as gradual progress towards levels of unemployment and inflation consistent with the Federal Reserve’s statutory mandate to foster maximum employment and price stability.
More specifically, participants’ projections for economic growth have a central tendency of 2.0% to 2.3% for 2013, rising to 2.9% to 3.1% in 2014 and 2.5% to 3.3% in 2016.
For the unemployment rate, the central tendency of projections for the fourth quarter of this year is 7.1% to 7.3% for 2013, declining to 6.4% to 6.8% in 2014, and by 2016 to 5.4% to 5.9% – about the longer-run normal level for the unemployment rate.
Most participants see inflation gradually increase from its current low level toward the committee’s longer-run objective of 2%. The central tendency of their projections for inflation is 1.1% to 1.2% for this year, 1.3% to 1.8% for 2014, and 1.7% to 2.0% to 2016.
With unemployment still elevated and inflation projected to run below the committee’s longer-run objective, the committee is continuing its highly accommodative policies.
As you know in normal times, the committee eases monetary policy by lowering its target for short-term policy interest rate – the federal fund rate. However, the target rate – the federal fund’s rate current at 0% to 0.25% – cannot be lowered meaningfully further.
Accordingly, the committee has been providing policy support to the economy through two complementary methods by purchasing and holding Treasury securities and agency mortgage-backed securities and by communicating the committee’s plans for setting the federal fund rate’s target over the medium term.
I’ll discuss these tools in turn beginning with our program of asset purchases.
In September 2012, the FOMC initiated a program of purchasing $40 billion per month in agency mortgage-backed securities in addition to the $45 billion per month in longer-term Treasury securities that we were already acquiring as part of our maturity extension program.
We stated that subject to our ongoing assessment of the efficacy and cost of the program purchases would continue until we saw a substantial improvement in the outlook for the labor market in a context of price stability.
In December 2012, we announced that we would continue to purchase $45 billion per month in longer-term treasuries after the maturity extension program ended later that month. Thus, our total purchases of longer-term securities were maintained at $85 billion per month in addition to the re-investment or rolling over of maturing securities on our balance sheet.
The committee agreed today to continue asset purchases at that rate subject to the same conditions that we laid out a year ago.
Because the committee tied its purchases to the outlook for the labor market, it’s important to assess how that outlook has evolved.
As I noted earlier, conditions in the job market today are still far from what all of us would like to see.
Nevertheless, meaningful progress has been made in the year since we announced the asset purchase program.
For example, the unemployment rate has fallen from 8.1% at the time of our announcement to 7.3% today, and about 2.3 million private sector jobs have been created over the same period. Over the past 12 months, aggregate hours of work were up by about 2.4%, weekly new claims for unemployment insurance have fallen by about 50,000, and surveys suggest that households perceive jobs as more readily available.
Importantly, these gains were achieved despite substantial fiscal headwinds, which are likely slowing economic growth this year by a percentage point or more and reducing employment by hundreds of thousands of jobs.
Not all of the labor market developments over the past year were positive, however. Notably, the labor force participation rate fell by about 0.3% and real wages remain about flat.
In light of this cumulative progress, the FOMC concluded at our June meeting that the criterion of substantial improvement in the outlook of the labor market might well be met over the subsequent year or so. Accordingly, the committee sought to provide more guidance on how the pace of purchases might be adjusted over time.
The committee anticipated in June that subject to certain conditions, it might be appropriate to begin to moderate the pace of purchases later this year, continuing to reduce the pace of purchases in measured steps through the first half of next year, and ending purchases around mid-year of 2014.
However, we also made clear at that time that adjustments to the pace of purchases would depend importantly on the evolution of the economic outlook and in particular under a sea of evidence supporting the committee’s expectation that gains in the labor market will be sustained and that inflation is moving back towards its 2% objective over time.
At the meeting concluded earlier today, the sense of the committee was that the broad contours of the medium term economic outlook, including economic growth sufficient to support ongoing gains in the labor market and inflation moving towards its objective, were close to views held in June.
But in evaluating whether a modest reduction in the pace of asset purchases would be appropriate at this meeting, however, the committee concluded that the economic data do not yet provide sufficient confirmation of its baseline outlook to warrant such a reduction.
Moreover, the committee has some concern that the rapid tightening of financial conditions in recent months could have the effect of slowing growth, as I noted earlier, a concern that would be exacerbated if conditions tighten further.
Finally, the extent of the effects of restrictive fiscal policy remain unclear and upcoming fiscal debates may involve additional risks to financial markets and to the broader economy.
In light of these uncertainties, the committee decided to await more evidence that the recovery’s progress will be sustained before adjusting the pace of asset purchases.
The committee will, of course, continue to monitor economic and financial developments closely. As noted in today’s statement, in judging when to moderate the pace of asset purchases, the committee will at its coming meetings asses whether incoming information continues to support the committee’s expectation of ongoing improvement in labor market conditions and inflation moving back towards its longer-run objective.
However, as we have said and as today’s decision underscores, asset purchases are not on a pre-set course. The committee’s decisions about their pace were made contingent on the economic outlook and on the committee’s ongoing assessment of the likely efficacy and cost of the program.
Let me turn now to the FOMC’s forward guidance regarding the federal funds rate.
The committee again reaffirmed its expectation that the current exceptionally low range to the fund’s rate will be appropriate at least as long as the unemployment rate remains above 6.5%, so long as inflation and inflation expectations remain well-behaved as described in our statement.
As I’ve noted frequently, economic conditions we have set out as proceeding any future rate increase are thresholds not triggers.
For example, at the time the unemployment rate is 6.5% will not lead automatically to an increase in the federal funds rate target but would instead indicate only that it had become appropriate for the committee to consider whether the broader economic outlook justifies such an increase. The committee would be unlikely to increase rates if inflations were projected to remain below our 2% objective for some time, for example. And in making its assessment, the committee would also take into account additional measures of labor market conditions, such as job gains.
Thus, the first increase in short-term rates might not occur until the unemployment rate is considerably below 6.5%.
The projections of the past of the federal funds rate by individual committee participants are generally consistent with this guidance.
Although the central tendency of the projected unemployment rate for the fourth quarter of next year encompasses 6.5%, 12 of the 17 participants expect the first rate increase to take place in 2015 and 2 expect it to occur in 2016.
Most participants also see the funds rate target rising only very slowly after the process of removing policy accommodation begins. The median projected funds rate for the end of 2015 is 1%.
And notably, although the central tendencies of projections of both inflation and the unemployment rate in 2016 are close to the longer-run normal values of those variables, the median projection for the federal funds rate at the end of 2016 is 2%, well below the longer-run normal value for the federal funds rate of 4% or so projected by most participants.
Committee participants generally believe that because the headwinds to recovery will abate only gradually, achieving and maintaining maximum employment and price stability will require a patient policy approach that involves keeping the target for the federal funds rate below its longer-run normal value for some time.
Let me close by noting that although the FOMC is employing two instruments of policy, asset purchases and forward guidance of our short-term interest rates, the overall stance of monetary policy is what matters for growth, jobs, and inflation.
Our program of asset purchases was set up a year ago to help achieve a substantial improvement in the outlook for the labor market in a context of price stability relative to conditions when the program was initiated, and we have made progress toward meeting that criterion.
However, even after asset purchases are wound down, which we would do in a manner that is both deliberate and dependent on the incoming economic data, the Federal Reserve’s rates guidance and its ongoing holdings of securities will ensure that monetary policy remains highly accommodative, consistent with an aggressive pursuit of our mandated objectives of maximum employment and price stability.
Thank you. I’d be glad to take your questions.
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