Ben Bernanke’s June 22 Press Conference – Notable Aspects

On Wednesday June 22 Ben Bernanke gave his scheduled Press Conference.  Overall, I found his remarks less notable than that of his April 27 Press Conference, which I commented upon in the April 28 post titled “Ben Bernanke’s April 27 Press Conference – My Comments.”

Here are Ben Bernanke’s comments I found most notable, although I don’t necessarily agree with them.  These comments are excerpted from the transcript (preliminary) (pdf), with Bernanke’s responses as indicated to the various questions:

from page 6:

Greg Ip: Mr. Chairman, the Committee lowered not just this year’s central tendency forecast but also 2012.  And, yet, the statement of the Committee attributes most of the revision forecast to temporary factors.  So I was wondering if you could explain what seems to be persisting in terms of holding the recovery back.  I did see the statement says in part to factors that are likely to be temporary.  Are there more permanent factors that are producing a worse outlook than three months ago?

Chairman Bernanke: Well, as you — as you point out, what we say is that the temporary factors are in part the reason for the slowdown.  In other words, part of the slowdown is temporary, and part of it may be longer lasting.  We do believe that growth is going to pick up going into 2012 but at a somewhat slower pace from — than we had anticipated in April.  We don’t have a precise read on why this slower pace of growth is persisting.  One way to think about it is that maybe some of the headwinds that have been concerning us like, you know, weakness in the financial sector, problems in the housing sector, balance sheet and deleveraging issues, some of these headwinds may be stronger and more persistent than we thought.  And I think it’s an appropriate balance to attribute the slowdown partly to these identifiable temporary factors but to acknowledge a possibility that some of the slowdown is due to factors which are longer lived and which will be still operative by next year.  You note that, in 2013, we have growth at about the same rate that we anticipated in April.

from page 6:

Bernanke, in response to a question about further easing, from Steve Liesman:

With respect to additional asset purchases, we haven’t taken any action, obviously, today.  We’ll be reviewing the outlook going forward.  It will be a Committee decision.  I think the point I would make, though, in terms of where we are today versus where we were, say, in August of last year when I began to talk about asset purchases is that at that time inflation was very low and falling.  Many objective indicators suggested that deflation was a nontrivial risk.  And I think that the securities purchases have been very successful in eliminating deflation risk.  I don’t think people appreciate necessarily that deflation can be a very pernicious situation where — could have very longlasting effects on economic growth.

In addition, growth in payrolls has actually picked up.  In the four months before the Jackson Hole speech in August, there was about an 80,000 per-month payroll increase.  So far in 2011, including the weak payroll report in May, the average is closer to 180,000.  So there has been improvement in the labor market, albeit not as strong as we would like.  As of last August, we were essentially missing significantly in both — on both sides of our mandate.  Inflation was too low and falling, and unemployment looked like it might be even beginning to rise again.  In that case, the case for monetary action was pretty clear in my mind.  I think we are in a different position today, certainly not where we’d like to be but closer to the dual mandate objectives than we were at that time.  So, again, the situation is different today than last August; but we’ll continue to monitor the economy and act as needed.

from page 20:

Bernanke’s response to a question about the timing of the growth rate of employment:

In terms of the unemployment rate, though, given that growth is not much above the long-run potential rate of growth — and we have in our projections an estimate of 2.5 to 2.8 percent.  We haven’t really done much better than that — it takes growth faster than potential to bring down unemployment.  And since we’re not getting that, we project unemployment to come down very painfully slowly.  At some point, if growth picks up as we anticipate, job numbers will start getting better.  We’re still some years away from full employment in the sense of 5 ½ percent, say; and that’s, of course, very frustrating because it means that many people will be out of work for a very extended time.  And that can have significant long-term consequences that concern me very much.

from page 21:

Akihiro Okada: Mr. Chairman, I am Akihiro Okada with Yomiuri Shimbun, a Japanese newspaper. During the Japanese lost decade in the 1990s, you strongly criticized Japan’s radical policies. Recently Barry Summers suggested in his column that the U.S. is in the middle of its own lost decade.  Based on those points with QE2 ending, what do you think of Japan’s experience and the reality facing the U.S.?  Are there any history lessons that we should be reminded about?  Thank you.

Chairman Bernanke: Well, I’m a little bit more sympathetic to central bankers now than I was ten years ago.  I think it’s very important to understand that in my comments, both in my comment in the published comment a decade ago as well as in my speech in 2002 about deflation, my main point was that a determined  central bank can always do something about deflation.  After all, inflation is a monetary phenomenon, a central bank can always create money, so on.  I also argued — and I think it’s well understood that deflation, persistent deflation can be a very debilitating factor in — in growth and employment in an economy.  So we acted on that advice here in the United States, as I just described, in August, September of last year.  We could infer from, say, TIPS prices and inflation index bond prices, that investors saw something on the order of one-third chance of outright deflation going forward.  So there was a significant risk there.  The securities purchases that we did were intended in part to end that risk of deflation.  And I think it’s widely agreed that we succeeded in ending that deflation risk.  I think also that our policies were constructive on the employment side.  This, I realize, is a bit more controversial.  But we did take actions as needed, even though we were to zero lower bound of interest rates, to address deflation. So that was the thrust of my remarks ten years ago.  And we’ve been consistent with that — with that approach.


The Special Note summarizes my overall thoughts about our economic situation

SPX at 1283.50 as this post is written