WASHINGTON (Reuters) - Below are highlights from Federal Reserve Chairman Ben Bernanke’s news conference following the Fed’s policy meeting on Thursday.
”The unemployment decline last month was more than 100 percent accounted for by declines in participation. Some decline in participation is anticipated, is expected. We’re an aging society, we have more people retiring. Female participation has flattened out. It hasn’t continued to climb as it did for several decades. We’re seeing less participation among younger people, fewer college students taking part-time jobs and the like.
”So part of this decline in participation was something that we anticipated quite a long time ago, but part of it is cyclical. Part of it reflects the fact that some people because they have essentially given up or have discouraged have decided to leave the labour force. And the anticipation is that if the economy really were to strengthen and labour markets were to strengthen at least some of those people would come back to the labour force, they might even temporarily raise the unemployment rate because they’re now looking again. ...
“We do want to look at a range of indicators, not just the unemployment rate, although that’s a very important indicator, not just payrolls, although that also is a leading indicator, but participation, hours, part-time work and a variety of other measures which suggest that our labour market is still in quite weak condition.”
“Whether we have the credibility to persuade markets that we’ll follow through is an empirical question. And the evidence ... is that when we’ve announced extended guidance that financial markets have responded to that, that private sector forecasters have changed their estimates of what unemployment and inflation will be when the Fed begins to remove accommodation. So the empirical evidence is that ... our announcements do have considerable credibility. And I think there’s good reason for that, which is that we have talked a lot both publicly and privately about the rationale for maintaining rates low even as the economy strengthens, and I think the basic ideas are broadly espoused within the Committee. And so there is a consensus that even as the personnel change and so going forward, that this is the appropriate approach, and that by following through, we will have created a reserve of credibility that we can use in any subsequent episodes that occur.”
”I can certainly confirm that as the Reserve bank presidents and governors made their reports today and yesterday around the table, there was considerable discussion of ... fiscal policy uncertainty and the implications of that for hiring and investment decisions. A lot of firms are waiting to see whether that problem will be resolved. And if so, how? And I think it is a concern. It is something that is affecting behaviour now. But again, I don’t know - I don’t have a number. I don’t know how big that effect is but certainly the sooner that can be resolved, sooner can be clarified it will be beneficial, not just because we avoid the cliff itself but because we clarify for firms, for employers and investors how that’s going to be resolved. So I think it’s an issue that is of some consequence, yes.
“I think that house prices are beginning to rise in some markets, which will encourage people to look at homes, will encourage lenders to make more mortgage loans. I am hoping we will continue to see progress in the housing market. That is one of the missing pistons in the engine here, housing is usually a big part of a recovery process. We haven’t had that nearly to the usual extent. And to the extent that we can support housing I think that would be a very useful outcome.”
“On inflation, we do anticipate at some point what’s normal in a recovery, which is given that the economy fell very quickly and there’s a lot of unused capacity, there’s a lot of slack in the economy, it would be normal that there would be a period the economy would grow faster than trend in order to make up some of the slack that was created. So we don’t anticipate the economy is going to be overheating anytime soon. And as long as we pay close attention to inflation expectations as well as the trajectory of the economy, we think inflation will remain close to our 2 percent target.”
”CBO has suggested, if that’s allowed to take place that it would cause unemployment to begin to rise and it might throw the economy back into recession. So I think one very basic thing that could be done to help address the recovery - the weaknesses in the recovery and the need for more employment would be to address the fiscal cliff while simultaneously addressing longer term fiscal sustainability issues which remain, of course, very serious.
“If the fiscal cliff isn’t addressed, as I’ve said, I don’t think our tools are strong enough to offset the effects of a major fiscal shock so we’d have to think about what to do in that contingency. So I think it’s really important for the fiscal policymakers to, you know, work together to try and find a solution for that.”
”When Operation Twist ends we’ll be looking at the whole set of asset purchases in order to make decisions. We’ll be looking at the state of the economy, as we described in the statement. In particular, what’s the state of the labour market, what’s the state of the outlook for economic growth....
”But the idea here is to make that more explicit, more transparent to the public, make it more obvious that the Fed will do what’s needed to provide the support for the economy. And we hope that what that will do is provide a bit more assurance, maybe a bit more confidence that the Fed will be there to do what it can.
Again, we’re not promising, you know, a cure to all these ills. But what we can do is provide some support and by assuring the public that we will be prepared to take action if the economy falters, we’re hopeful that will increase confidence and make people more willing to invest, hire and spend.
BERNANKE ON FED‘S INDEPENDENCE:
“I am very focused on my work, I don’t have any decision or any information to give you on my personal plans. On the politics, we have tried very, very hard and I think we have been successful at the Federal Reserve to be nonpartisan and apolitical and make our decisions based entirely on the state of the economy and the needs of the economy for policy accommodation, so we just don’t take those factors into account. We think that’s the best way to maintain our independence and the trust of the public.”
“We want to see the unemployment rate come down, but that is not the only indicator, obviously, of labour market conditions. The unemployment rate came down last month because participation fell. That’s not necessarily a sign of improvement. So we want to see more jobs, we want to see lower unemployment, we want to see a stronger economy that can cause the improvement to be sustained.”
“It is not just a one-month or two-month phenomenon. We are not going to be looking for little wiggles in the numbers that are going to cause us to radically shift our policy. We at least at this point have decided to define it qualitatively. I hope I am giving you at least a little colour in terms of what we will be looking for. We will be looking for, again, an economy which is quickening, that gives signs of continued improvement, that allows labour markets to be stronger, and that will be the type of qualitative criteria that we look at. We don‘t, again, we don’t have a single number that captures that but we anticipate that we will have to do more, and we will do enough to make sure that the economy gets on the right track.”
“This is a Main Street policy because what we are about here is trying to get jobs going. We are trying to create more employment. We are trying to meet our maximum employment mandate, so that is our objective. Our tools involve, I mean the tools we have, involve affecting financial asset prices and those are the tools of monetary policy. There are a number of different channels - mortgage rates, I mentioned corporate bond rates, but also prices of various assets, like for example the prices of homes. To the extent that home prices begin to rise, consumers will feel wealthier, they’ll feel more disposed to spend. If house prices are rising people may be more willing to buy homes because they think that they will make a better return on that purchase. So house prices is one vehicle.”
“Stock prices, many people own stocks directly or indirectly. The issue here is whether or not improving asset prices generally will make people more willing to spend. One of the main concerns that firms have is there is not enough demand, there’s not enough people coming and demanding their products. If people feel that their financial situation is better because their 401(k) looks better for whatever reason, or their house is worth more, they are more willing to go out and provide the demand.”
“One factor actually that could make our policy more effective rather than less effective over time - if more people have access to mortgage credit, more people could take advantage of the low rates that we are providing.”
“There are a variety of possibilities and we continue to look at all different options but the two primary types of tools as I have discussed are balance sheet action, and of course we can restructure those, change those in various ways. The other type of tool is communication tools. We continue to work on how best to communicate with the public and how best to assure the public that the Fed will remain accommodative long enough to ensure a recovery. So working with our communications tools, clarifying our response to economic conditions, might be one way in which we could further provide accommodation.”
“The policies that we have undertaken have had real benefits for the economy that they have provided some support, that they have eased financial conditions and helped reduce unemployment. All that being said, monetary policy as I’ve said many times is not panacea, it is not by itself able to solve these problems. We are looking for policymakers in other areas to do their part. We will do our part and we will try to make sure that unemployment moves in the right direction but we can’t solve this problem by ourselves.”
BERNANKE ON FED MAKING MEANINGFUL CONTRIBUTION TO JOBLESS RATE:
“I want to be clear that while I think we can make a meaningful and significant contribution to this problem, to reducing this problem, we can’t solve it. We don’t have tools that are strong enough to solve the unemployment problem.”
“Well our policy approach doesn’t involve intentionally trying to raise inflation. That is not the objective. The idea is to make sure we provide enough support so the economy will grow fast enough to bring unemployment down over time. I mean as we look back at the last six months or so we’ve seen unemployment basically the same place it was in January. We’ve seen not enough jobs growth to bring down the unemployment rate and what we need to see is more progress. And that is what we will be looking at. In terms of the mid-2015 date we think by that point that the economy will be recovering, will be providing the support it needs ... We still believe that inflation is going to be close to our 2 percent target.”
“We have been taking about our communications at the FOMC and trying to think about how best to communicate to the public what our policy reaction function, so to speak, is. And we haven’t to this point come to a set of numbers, a set of data that we can put out. But what we’re trying to convey here is that we’re not going to (be) premature in removing policy accommodation, even after the economy starts to recover more quickly, even after the unemployment rate begins to move down more decisively we’re not going to rush to begin to tighten policy. We’re going to give it some time to make sure the recovery is well established.”
“If inflation goes above the target level, as we talk about in our statement in January, we take a balanced approach. We bring inflation back to the target over time but we do it in a way that takes into account the deviations of both of our objectives from their targets.”
“Inflation has varied in recent years with swings in food and fuel prices caused by a range of factors such as drought and geopolitical tensions. However overall inflation has averaged very close to the committee’s goal of 2 percent per year for quite a few years now in a variety of measures show that longer-term inflation expectations are quite stable. The Federal Reserve is fully committed to both sides of its mandate, to price stability as well as to maximum employment. And it has both the tools and the will to act at the appropriate time to avoid any emerging threat to price stability.”
“We will be looking for signs that the economy is strong enough to promote improvement, and sustained improvement, in labour market conditions and declines in unemployment. I mean that - we are not to be able to sustain purchases until we are all the way back to full employment, that is not the objective. The idea is to quicken the recovery to help the economy begin to grow quickly enough to generate new jobs and reduce the unemployment rate. So that is the criterion we are looking at.”
“The program of MBS purchases should increase the downward pressure on long-term interest rates more generally but also on mortgage rates specifically, which will provide support for the housing sector by encouraging home purchases and refinancing.”
”The committee also took two steps to underscore its commitment to ongoing support for the recovery. First the committee will closely monitor incoming information on economic and financial developments in coming months and if we do not see substantial improvement in the outlook for the labour market we will continue the MBS purchase program undertake additional asset purchases and employ our policy tools is appropriate until we do.
“We will be looking for the sort of broad-based growth in jobs and economic activity that generally signals sustained improvement in labour market conditions and declining unemployment. Of course in determining the size, pace and composition of any additional asset purchases, we will as always take appropriate account of the inflation outlook and of their efficacy and costs.”
“The employment situation ... remains a grave concern,”
“While the economy appears to be on a path of moderate recovery, it isn’t growing fast enough to make significant progress reducing the unemployment rate.”
“Additionally the committee emphasized that it expects a highly accommodative stance on monetary policy to remain appropriate for a considerable time after the economic recovery strengthens.”
“This should provide greater assurance to households and businesses that policy accommodation remains even as the economy picks up. In particular the committee today kept a target range for the federal funds rate at zero to 0.25% and stated that it anticipates that exceptionally low levels for the federal funds rate are likely to be warranted at least through mid-2015.”