On Wednesday, June 20, 2012 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 – in the order they appear in the transcript. These comments are excerpted from the “Transcript of Chairman Bernanke’s Press Conference“(preliminary)(pdf) of June 20, 2012, with accompanying Economic Projections of Federal Reserve Board Members and Federal Reserve Bank Presidents, June 2012 (pdf).
Bernanke’s responses as indicated to the various questions:
Steve Liesman: Steve Liesman, CNBC. Mr. Chairman, looking back on the last four years of Fed policy, I think it’s probably fair to say it has been bold and yet at the same time halting. You did QE1 and then you stopped and you did QE2. You did Operation Twist and you told us it was going to end in June. Now you’ve extended it. How would you respond if several years from now, a young MIT Graduate student came forward and said, “You know what the problem with that policy was during this period is it was too incremental and that the reason why the economy underperformed was because of that incrementalism.” And what do you think the dangers are right now that today’s action is also being too incremental?
Chairman Bernanke: Well, of course, you know, we cut the federal funds rate in a continuous fashion until December of 2008. And since then, we’ve been operating with nonstandard monetary tools including asset purchases and extension of maturities. By their nature, these tend to be lumpy. We haven’t done them in a continuous way. But our view of the effects of these programs on the economy is that the total stock of outstanding securities in our portfolio is what determines the level of accommodation that the economy is receiving. So in that respect, it wouldn’t be really a start and stop rather, whenever we have stopped purchasing the level of accommodation that was already in the system remains there until conditions warrant further action. Now, underlying all this, of course, is the fact that the outlook has changed. Like many other forecasters, the Federal Reserve was too optimistic early in the recovery about the pace of recovery. And we’ve had to add additional accommodation going forward as we have seen in fact that the headwinds have kept the recovery from being as strong as we would like. But again, by the nature of these unconventional tools, they are–tend to be more discreet in their size but they continue to have accommodative effects even after the pattern of purchases has ended.
Mark Felsenthal: Mark Felsenthal with Reuters. Mr. Chairman, many analysts have characterized today’s step as somewhat modest. Your own outlook has a much lower GDP projection. The unemployment rate in your outlook is–shows possibly no improvement at all in the unemployment rate through the end of this year. The program itself is smaller and of shorter duration than the original Operation Twist. Given this weaker outlook, why such a modest program? And when you say you are prepared to take further action, which is a stronger characterization than in your last meeting, does that mean you are prepared to do a full-on new asset purchase program?
Chairman Bernanke: Well, there has been a great deal of economic news since our last meeting. The incoming data were somewhat disappointing, but not entirely clear how to read them. We had issues with weather and seasonal adjustments and other factors. Meanwhile, Europe has had additional problems. We’ve seen some of those effects in financial markets. So, I think, there is some case to be made for making some additional judgments about where the economy is going. That being said, the step we took, the extension of the Maturity Extension Program, I think is a substantive step and it will provide some additional support. And yes, additional asset purchases would be among the things that we would certainly consider if we need to take additional measures to strengthen the economy.
Jeff Kearns: Thank you. Jeff Kearns from Bloomberg News. Given the projections today going out to ’14 seeing unemployment almost where it is now for another 2 years, can you look past 2014 and can you–now that we’re 5 years past the top of the stock market, 6 years past the top of the housing market, can this go on for a decade? Can this go on longer? Can you reassure Americans that it won’t go on for a dozen years like the depression?
Chairman Bernanke: Well, it’s our intention to do all we can to make sure that it doesn’t go on indefinitely. Unemployment is still too high but it has come down. It was about 10 percent at the peak and now it’s closer to 8 percent. It’s going down too slowly but it is going down. Our sense is that people are finding jobs but just not at the rate that we would like to see. And, you know, as I said, and as the statement says, if we don’t see continued improvement in the labor market, we’ll be prepared to take additional steps if appropriate.
Shahien Nasiripour: Shahien Nasiripour with the Financial Times. Mr. Chairman, one critique of the Fed’s accommodative actions over the past few years has been–that it’s helped those with the least propensity to spend, the wealthy, large businesses and corporations. While the Fed’s impact on those with the most propensity spent, the cash strapped in the middle income households has been muted. I was hoping that you could perhaps address this criticism particularly with a focus on access to credit.
Chairman Bernanke: Sure, well, access to credit is a major issue. There’s no question about it. Mortgage access is much tighter than it has been for a long time. Even credit card access is more restricted than it has been in the past. And that–what that does is to some extent it mutes the impact of the Fed’s actions. That being said, I don’t think it’s at all accurate to say that the Federal Reserve policy is not helping the broad public. First of all, many Americans are able to take advantage of lower interest rates. Many people have refinanced or bought homes. Others have taken out loans to buy cars. Auto loans are cheap and broadly available. So, there has been impact through lower interest rates, but I think more broadly is the indirect effects. If a firm has a low cost of capital, and we’ve seen a lot of corporate borrowing in the last couple of years, then they’re more likely to expand, to add capital, to add products and consequently, they are more likely to hire. And although again, the extent to which the payrolls have increased in the last few years has been disappointing. There have been significant increases and the unemployment rate has come down by 2 percentage points. Some of that comes from the broad impact of Fed policy on spending, on investments, and those effects affect the broad public indirectly by promoting hiring and by promoting demand for products that the people are producing.
Kevin Hall: All right, thanks. Kevin Hall of McClatchy Newspapers. If you could flush out a little bit more detail about what do you think the choke points are in the economy? SIFMA yesterday had their midyear outlook conference call in which they blamed full percentage point of the slowdown on fiscal cliff and more importantly Europe and said, you know, much bigger passer than anyone anticipated today. The Business
Roundtable said that Europe not so much, is basically the economy, the CEO of Boeing said, clearly we’re already trimming jobs, we’re already cutting back, everybody else in the Aerospace, he thinks, is doing the
same. What are you hearing? Are you on the phone with people or your predecessor was given a call occasionally? What is your sense of where the choke points are that are continuing that’s worth hiring?
Chairman Bernanke: Sure. I gave a list to some of the headwinds in my opening remarks. I do think that the European situation is slowing US economic growth. First of all, Europe is not in a recession in every
country, and certainly many countries are in recession and that affects our trade with Europe and the demand for our products. More broadly, the effects of European concerns on financial markets have added to volatility, have brought down stock prices, have increased credit spreads, and generally have been a negative for economic growth. That has been an issue and more broadly, we’ve seen some slowing in global economic growth more generally including in Asia which also has reduced somewhat our ability to export. So that’s one set of concerns that’s been important. I’d mentioned two others, I think, as being primarily important. One is housing. Housing usually plays a very important role in economic recovery, both through construction itself and related industries, but also because higher house prices increase consumer wealth and promote consumer spending. Housing does seem to be doing somewhat better. There are some good signs in housing but nevertheless we are not getting the size of the boost, the amount of help in the recovery that we would normally get from a housing recovery. The other area is, as you indicated, is fiscal and that happens at the–all different levels, federal, state, and local notwithstanding programs earlier on in the last year or two. And going forward, we have been seeing fiscal consolidation particularly the state and local level, of course, tight budgets have led to a lot of layoffs and cancellation of projects and so on. I understand that these are necessary steps from the perspective of individual states and localities. I’m not criticizing that, it’s just a fact, though, that these contractions are affecting the pace of growth in the broader economy. So I think those would be the main things I would point to and put them all together and you have an economy which is growing less quickly than it normally would following a recession of the magnitude that we saw.
Toshiki Yazawa: Thank you, Chairman. I’m Toshiki Yazawa from Nikkei. I hear a lot of conversations on liquidity trap in the U.S. There was a familiar concept in Japan after a bubble burst in the Lost Decades. Is
the U.S. economy in liquidity trap? And if that happens, how could economy escape from here? Thank you.
Chairman Bernanke: Well, the U.S. economy is in a situation where short term interest rates are close to zero. And so what that means is the Federal Reserve cannot add monetary accommodation by cutting short-term interest rates, the usual approach. It’s been one of the themes of my own work for a long time, including some of the work I did on the Bank of Japan, that central banks are not out of tools once the short-term interest rate hits zero. There are additional steps that can be taken. And we have demonstrated through both communications techniques, guidance about future policy, which is something the Japanese have done as well by the way, and through asset purchases, also something the Bank of Japan has done, that central banks do have some ability to provide financial accommodation to support their recovery even when short-term interest rates are close to zero. That being said, as I mentioned to Mr. Ip, these nonstandard policies are less well understood and they do have some cost and risks. But I do think that at the same time that they can be effective in helping the economy.
The Special Note summarizes my overall thoughts about our economic situation
SPX at 1335.02 as this post is written