Federal Reserve Chairman Ben Bernanke’s press conference proceeded largely as expected.

He didn’t say too many new things and mostly restated his well-known positions. Below are some of the important highlights.

QE3

- It’s not likely at this point because “the trade-offs are getting less attractive.”  The economy is already improving while inflation and inflation expectations have both inched higher.   

- It made sense back in 2010 because the economy was in danger of double-dipping and deflation, not inflation, was the fear.

QE2

- It worked because conditions in the financial markets and the real economy improved.

- No one ever said QE2 was going to solve all problems and return the US to full employment overnight. To judge it by those standards is unfair.

Other Monetary Policy Issues

-The “extended period” phrase means “a couple of meetings probably before action,” but it’s all subject to the performance of the underlying economy.

- The Fed subscribes to the “stock view” of asset purchases, meaning the size of the Fed’s portfolio is more important than the rate of purchases. As such, after QE2 ends, maturing assets will be reinvested and the stopping of reinvestments should be considered a step towards monetary tightening.

US Dollar

- In the long term, the Fed wants a stable and strong dollar. 

- To achieve that, the Fed will maintain low inflation. In addition, it will support a strong economy, thereby attract foreign capital and boosting the dollar.

 Oil

- High oil prices aren’t the Fed’s fault but rather due to supply and demand conditions. Emerging market countries are demanding more oil while the supply is disrupted by the ongoing turmoil in the Middle East.

- Going forward, the Fed expects oil prices to stabilize or even trend downward.

- As long as oil prices don’t translate into higher consumer prices across the board and cause inflation expectations to become unanchored, the Fed will remain in its “wait and see” mode.

US Budget Deficit

- The current level of the budget deficit is unsustainable over the long term. If not addressed, it threatens financial stability, economic growth, and living standards.

- Addressing the budget deficit is the top priority for lawmakers. “Nothing I say should be construed as saying it's anything other than a top priority,” said Bernanke.

US Long Term Future

-  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. 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, said Bernanke in closing.

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