Federal Reserve Chairman Ben Bernanke, for the first time ever, will hold a press conference on Wednesday after the Federal Reserve's monetary policy statement.
Four times per year. In 2011, the schedule is today (April 27), June 22, and November 2. If this event had begun earlier in 2011, the first one would have been held in January or March.
Normally, the Federal Reserve monetary policy statements are released at 2:15 pm Eastern Time. However, for these four times per year, the statements will be bumped up to 12:30 pm Eastern Time and the press conference will be at 2:15 pm Eastern Time.
In short, the Federal Reserve is trying to increase its transparency to the public after academic research in recent years showed that transparency is a better policy than opaqueness.
Politically, the Federal Reserve has received a lot of heat for the enormous behind-the-scenes role it played during the financial crisis. The press conference, then, may also be an effort to address such criticisms.
One thing the press conference on Wednesday is not aiming to do is introduce some new policy or views. Bernanke, therefore, is expected to mostly reiterate his existing and well-known views, which are:
- the economic recovery is proceeding at a moderate pace and overall conditions in the labor market are improving gradually
- the unemployment rate remains elevated, and measures of underlying inflation continue to be somewhat low
- inflation has picked up in recent months, but longer-term inflation expectations have remained stable and measures of underlying inflation are still subdued.
- Inflationary pressures from rising commodities prices transitory
There are two theories.
Some think Bernanke wants to defend QE2 against critics.
Others think he wants to distance himself from the public statements made by the hawkish members of the FOMC and reiterate his commitment to completing the entire $600-billion size of QE2.
Then again, Bernanke may have just wanted to take the next step in increasing transparency and now is as good of a time as any.
12:30: Federal Reserve releases monetary policy statement.
Information received since the Federal Open Market Committee met in March indicates that the economic recovery is proceeding at a moderate pace and overall conditions in the labor market are improving gradually. Household spending and business investment in equipment and software continue to expand. However, investment in nonresidential structures is still weak, and the housing sector continues to be depressed. Commodity prices have risen significantly since last summer, and concerns about global supplies of crude oil have contributed to a further increase in oil prices since the Committee met in March. Inflation has picked up in recent months, but longer-term inflation expectations have remained stable and measures of underlying inflation are still subdued.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The unemployment rate remains elevated, and measures of underlying inflation continue to be somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate. Increases in the prices of energy and other commodities have pushed up inflation in recent months. The Committee expects these effects to be transitory, but it will pay close attention to the evolution of inflation and inflation expectations. The Committee continues to anticipate a gradual return to higher levels of resource utilization in a context of price stability.
To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to continue expanding its holdings of securities as announced in November. In particular, the Committee is maintaining its existing policy of reinvesting principal payments from its securities holdings and will complete purchases of $600 billion of longer-term Treasury securities by the end of the current quarter. The Committee will regularly review the size and composition of its securities holdings in light of incoming information and is prepared to adjust those holdings as needed to best foster maximum employment and price stability.
The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period.
The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to support the economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Richard W. Fisher; Narayana Kocherlakota; Charles I. Plosser; Sarah Bloom Raskin; Daniel K. Tarullo; and Janet L. Yellen.
12:45: Commentary on the Federal Reserve monetary policy statement.
In substance, the April statement is exactly the same as the March statement. Bernanke and the FOMC simply reiterated their existing and well-known views on the economy and monetary policy.
12:45: Press Conference Begins.
- Bernanke is going over the monetary policy decision the Federal Reserve made today. He will take questions after this.
2:25: Bernanke begins to take questions.
Reporter: What does the extended period phrase in the Federal Reserve policy statement mean?
Bernanke: The extended period language is conditioned on exactly those same points. Extended period is conditioned on resource slack, on subdued inflation and on stable inflation expectations. Once those conditions are violated or we move away from those conditions, that's the time we need to begin to tighten.
Extended period suggests it would be a couple of meetings probably before action, but unfortunately, the reason we use this vaguer terminology is that we don't know with certainty how quickly response will be required and, therefore, we will do our best to communicate changes in our view.
Reporter: There are critics who say that fed policy has driven down the value of the dollar and lower value to the dollar reduces American standard of living. How do you respond to the criticism that essentially fed policy reduced the American standard of living?
Bernanke: I'll start by saying the secretary of the treasury is the spokesperson for the dollar and secretary Geitner had some words yesterday. Let me add to what he said first by saying that the Federal Reserve believes that a strong and stable dollar is both in American interest and in the interest of the global economy. There are many factors that cause the dollar to move up and down over short periods of time.
Over the medium term where our policy is aimed, we are doing two things. First, we are trying to maintain low and stable inflation by our definition of price stability. By maintaining the purchasing value of the dollar, keeping inflation low. That's obviously good for the dollar. The second thing we are trying to accomplish is get a stronger recovery understand achieve maximum employment. Again, a strong economy growing with attracting foreign capital will be good for the dollar.
Reporter: Many Americans are upset that gasoline prices are rising so fast and food prices are also going up.
Can you talk about whether there's anything that the fed can or should do about that?
Bernanke: So first of all, gasoline prices obviously have risen quite significantly. And we of course are watching that carefully. Higher gas prices are absolutely creating a great deal of financial hardship for a lot of people.
Our interpretation of the increase in gas prices is the economist basic mantra of supply and demand. On the one hand we have a rapidly growing global economy, emerging market economies are growing very quickly.
On the supply side, as everybody knows who watches television, we have seen disruptions in the Middle East and north Africa, Libya and other places that have constrained supply.
There's not much that the Federal Reserve can do about gas prices per se. At least not without derailing growth entirely, which is certainly not the right way to go.
After all, the fed can't create more oil.
Reporter: You say in your statement that longer term inflation expectations have remained stable, but a number of measures of expectations have risen in recent months. Is there anything that the Federal Reserve can do to prevent the public from incorrectly assuming that a period of higher inflation is on its way as a result?
Bernanke: It's fair to say that medium term expectations have not moved very much and they still indicate confidence that the fed will ensure that inflation in the medium term will be close to what I called the mandated consistent level.
Ultimately if inflation persists or if inflation expectations begin to move, there's no substitute for action. We would have to soon.
Reporter: How long will the fed continue to allow for reinvestments?
Bernanke: We subscribe generally to what we call here the stock view of the effects of securities purchases by which I mean that what matters primarily for interest rates, stock prices and so on is not the pace of ongoing purchase, but rather the size of the portfolio that the Federal Reserve holds.
So when we complete the program, as you noted, we are going to continue to reinvest maturing securities, both treasury and MBS. So the amount of securities that we hold will remain approximately constant.
At some point, presumably early in our exit process, [we] would be stop reinvesting all or part of the securities which are coming in.
Reporter: It is the view of many economists that the second quantitative round of easings hasn't done much for the economy. If there are positive effects, can you afford to end the program in June with the unemployment rate still around 9 percent?
Bernanke: First, I do believe that the second round of securities purchases was effective. We saw that first in the financial markets.
We [also] saw strengthening labor market conditions, higher rates of payroll, job creation, et cetera.
The conclusion, therefore, that the second round of securities purchases was ineffective could only be validated when one thought that this step was a panacea, that it was going to solve all the problems and return us to full employment overnight.
We were all worried about a double dip and we were worried about deflation [back when we made the decision to start QE2].
Why not do more?
The trade-offs are getting less attractive at point. Inflation has gotten higher. Inflation expectations are a bit higher.
It is not clear that we can get substantial improvements in payrolls without some additional inflation risk.
Reporter: Last week S&P put the United States debt on a negative watch for the very first time ever. What is your reaction to that?
Bernanke: We currently have a fiscal deficit which is simply not sustainable over the longer term. And if it is not addressed it will have significant consequences for financial stability, for economic growth, and for our standard of living.
We are still a long way from a solution, obviously. But I think it is of the highest importance that our political leaders address this very difficult problem.
To the extent that the S&P action goads a response, I think that's constructive.
Addressing the fiscal deficit, particularly the long run unsustainable deficit is a top priority. Nothing I say should be construed as saying it's anything other than a top priority.
Reporter: Isn't it possible that the fed's policies could be providing the monetary continue der for inflation the longer they continue?
Bernanke: Well, we view our monetary policies as being not that different from ordinary monetary policy. It's true that we used some different tools, but those tools are operating through financial conditions.
So the problem is the same one that Central Banks always face, which is choosing the appropriate path of tightening at the appropriate stage of the recovery. It's difficult to get it exactly right, but we have a lot of experience in terms of what are the considerations and the economics that underlie those decisions.
Reporter from France: Many of the commercial partners of the United States are very concerned about the evolution of your foreign exchange rate. If in one hypothetical case the dollar would sink to a not tolerable level which would harm very much the U.S. economy and the prospect for the global economy because it affects the confidence of so many people, would you consider changing your monetary policy in accordance to that threat?
Bernanke: Well, as I said earlier, we do believe that a strong and stable dollar is in the interests of the United States and is in the interest of the global economy.
Our view is that the best thing we can do for the dollar is first to keep the purchasing power of the dollar strong by keeping inflation low and by creating a stronger economy through policies which support the recovery and cause more capital inflows to the United States.
So I don't think I really want to address a hypothetical which I really don't anticipate.
Reporter: Can you talk a little bit about your decision to take this historic step of holding a news conference after a Fed meeting?
Bernanke: Well, the Federal Reserve has been looking for ways to increase transparency now for many years. It used to be that the mystique of Central Banking was all about not letting anybody know what you were doing.
Since then we have taken a number of steps [to become more transparent].
It provides a chance for the chairman in this case to provide additional color and context for both in this case both the meeting and the projections that are being made by the committee.
We thought it was a natural next step. We are not do done. We are looking for more things we can do to be more transparent.
Bernanke (in a response to a question about financial crises): I am very confident that in the long run the U.S. will return to being the most productive, one of the fastest growing and dynamic economies in the world. And it hasn't lost any of the basic characteristics that made it the preeminent economy in the world before the crisis and I think we will return to that status as we recover.
3:13: Bernanke ends conference.