Ben Bernanke’s November 2 Press Conference – Notable Aspects

On Wednesday November 2 Ben Bernanke gave his scheduled Press Conference.

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 of Chairman Bernanke’s Press Conference” of November 2 2011 (preliminary) (pdf), with Bernanke’s responses as indicated to the various questions:

from page 4 (Opening Remarks):

In short, while we still expect that economic activity and labor market conditions, will improve gradually over time, the pace of the progress is likely to be frustratingly slow. Moreover, there are significant downside risks to the economic outlook. Most notably, concerns about
European fiscal and banking issues have contributed to strains in global financial markets which have likely had adverse effects on confidence and growth.

from page 7:

Binyamin Appelbaum: Has the Fed discussed the idea of nominal GDP targeting and what are your views on the advantages and disadvantages of that approach?

Chairman Bernanke: So the Fed’s mandate is of course a dual mandate.  We have a mandate for both employment and for price stability and we have a framework in place that allows us to communicate and to think about that, the two sides of that mandate. We talked today–or
yesterday actually–about nominal GDP as indicators and information variable as something to add to the list of variables that we think about and it was a very interesting discussion. However, we think that within the existing framework that we have, which looks at both sides of the mandate, not just some combination of the two, we can communicate whatever we need to communicate about future monetary policy. So we are not contemplating at this at this time any radical change in framework. We’re going to stay within the dual mandate approach that we’ve been using until this point.

from page 14:

Neil Irwin: Neil Irwin with the Washington Post. Mr. Chairman this is the third straight set of economic projections released that have downgraded forecasts for growth and for employment. I wonder, is there some systematic error, some blind spot that’s behind these kind of overly optimistic forecasts? What are you doing internally to understand what you got wrong the last two projections?

Chairman Bernanke: Well, it’s a perfectly fair question. And, you know, we spend a lot of time reviewing those errors, the staff in particular presents us with information on –on forecast errors and on revisions, et cetera. And so we look at that very carefully. I think it’s clear that in retrospect that the severity of the financial crisis and a number of other problems including the dysfunction of the
housing market have been more severe and more persistent than we initially believed and that together with a number of other phenomena like deleveraging by the household sector and so on has slowed the pace of recovery. So, yes, we have again downgraded the medium-term forecast, evidently the forces–you know, the drags on the recovery were stronger than we thought. I would add, however, though that although I think it’s very important to look at the fundamental factors affecting the recovery, there’s been some elements of bad luck. For example this year, the combination of the natural disaster in Japan, which had global impacts in terms of growth; oil price
increases; the European debt crisis, which was not anticipated to be as severe and has created as much volatilities as it has in financial markets, all those things had been negatives for growth and they doexplain at least part of the–of the downward revision.

from page 15:

Michael McKee: Michael McKee with Bloomberg Television. Many Americans wonder what the Fed has actually accomplished with its monetary policy actions since about QE2. Fed officials like to talk about the effect they’ve had on interest rates but the economy seems insensitive to interest rates these days. Can you explain what you have managed to accomplish? Can you tell us whether you feel your mandate requires you to do anything you can think of on an ongoing basis until some targets are met? And can you explain to the average American why you’re doing what you’re doing? And do you think that you risk credibility if the average American doesn’t see some sort of improvement in the economy?

Chairman Bernanke: No, it’s a fair question. I would first say that our monetary policy is having effects on the economy and we’ve talked about the effects on asset prices but we have continued to analyze the effects of changes in interest rates for example on decisions like investment or car purchases. One area where monetary policy has been blunted, the effects have been blunted, has been the mortgage market where very tight credit standards have prevented many people from purchasing or refinancing their homes and therefore the low mortgage rates that we’ve achieved have not been as effective as we had hoped.  So, monetary policy maybe is somewhat less powerful in the current  context than it has been in the past but nevertheless it is affecting  economic growth and job creation. If you ask about the accomplishments, I would first of all mention a very important one which is that we have kept inflation close to 2 percent on average, which both has avoided the problems of high inflation but also very importantly has avoided the risk of deflation. And we have seen in other countries, in other contexts that deflation can be a very pernicious problem and very difficult to get out of once you are there. So, we have been able to achieve on average stable prices. With respect to growth, I think that our policies including the cutting rates to zero in December 2008 and the, the first round of–of asset purchases in the fall of ’08 and in the spring of ’09 were very important for helping to explain why the economy stopped contracting and began to grow again in the middle of 2009. I think there’s a lot of evidence that that did promote growth and job creation. I would
argue that we’ve also been successful with some of the later actions that we’ve taken, although it’s early to say for things like the maturity extension program. But we always face the problem of asking the question of: Where we would be without these policies? And our best estimates are that absent the support of monetary policy that the economy would be in a much deeper ditch and that unemployment would be much higher than it is. That being said, you know, again people rightly recognize that we have not yet gotten the economy back to where we want it to be and their dissatisfaction is perfectly understandable. Yes, I do think that with, you know, that we do need to do whatever we can to move the economy towards price stability and maximum employment. We’ll continue to do that so long as the tools that we have are efficacious and that they don’t have costs or risks or negative side effects that are worse than the benefits, we’ll always be making that evaluation.


The Special Note summarizes my overall thoughts about our economic situation

SPX at 1253.23 as this post is written