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  • Transcript of Chairman Bernanke's Press Conference January 25,

  • 2012 CHAIRMAN BERNANKE.

  • Good afternoon and welcome.

  • In my opening remarks I will briefly review today's policy decision

  • by the Federal Open Market Committee.

  • And then I'll discuss next the consensus statement that has been distributed

  • to you regarding the Committee's longer-run policy goals and strategy.

  • And finally, I'll place today's policy decision in the context

  • of our economic projections and our assessments

  • of the appropriate path of monetary policy.

  • And I'll then, of course, be glad to take your questions.

  • As indicated in the statement released earlier this afternoon,

  • to support a stronger economic recovery and to help ensure that inflation,

  • over time, is at levels consistent with our statutory mandate,

  • the Committee expects to maintain a highly accommodative stance

  • for monetary policy.

  • In particular, the Committee decided to keep the target range

  • for the federal funds rate at 0 to ¼ percent and currently anticipates

  • that economic conditions are likely to warrant exceptionally low levels

  • for the federal funds rate at least until late 2014.

  • To provide support for the recovery in the context of price stability,

  • the Committee will also continue the program that we announced in September

  • to extend the average maturity of the Federal Reserve's holdings of securities.

  • Following careful deliberations,

  • Committee participants have reached broad agreement on a statement

  • that sets forth our longer-run goals and policy strategy.

  • This statement should not be interpreted as indicating any change

  • in how the Federal Reserve conducts monetary policy.

  • Rather, its purpose is to increase the transparency

  • and predictability of policy.

  • There is today widespread agreement that clear

  • and transparent central bank communications facilitate well informed

  • decisionmaking by households and businesses,

  • reduce economic and financial uncertainty,

  • increase the effectiveness of monetary policy,

  • and enhance accountability to the public.

  • The statement begins by noting the Committee's firm commitment

  • to fulfill our statutory mandate of promoting maximum employment, stable prices,

  • and moderate long-term interest rates.

  • Since monetary policy actions tend to influence economic activity

  • and prices with a lag, our decisions appropriately reflect the Committee's

  • longer-run goals, our medium-term outlook, and our assessment of the balance

  • of risks, including risks to the financial system

  • that could impede the attainment of our goals.

  • An important aspect of policy transparency is clarity about policy objectives.

  • With respect to the objective of price stability,

  • it is essential to recognize that the inflation rate

  • over the longer run is primarily determined by monetary policy,

  • and hence the Committee has the ability

  • to specify a longer-run goal for inflation.

  • The Committee judges that inflation at the rate of 2 percent,

  • as measured by the annual change in the price index

  • for personal consumption expenditures, is most consistent over the longer run

  • with our statutory mandate.

  • Over time, a higher inflation rate would reduce the public's ability

  • to make accurate longer-term economic and financial decisions,

  • whereas a lower inflation rate would be associated with an elevated probability

  • of falling into deflation, which can lead to significant economic problems.

  • Clearly communicating to the public this 2 percent goal for inflation

  • over the longer run should help foster price stability

  • and moderate long-term interest rates and will enhance the Committee's ability

  • to promote maximum employment in the face of significant economic disturbances.

  • Maximum employment stands on an equal footing with price stability

  • as an objective of monetary policy.

  • A difference with price stability is that the maximum level of employment

  • in a given economy is largely determined by nonmonetary factors

  • that affect the structure and dynamics of the labor market,

  • including demographic trends, the pace of technological innovation,

  • and a variety of other influences, including a range of economic policies.

  • Because monetary policy does not determine the maximum level of employment

  • that the economy can sustain in the longer term,

  • and since many of the determinants of maximum employment may change over time

  • or may not be directly measurable, it is not feasible for any central bank

  • to specify a fixed goal for the longer-run level of employment.

  • Although the Committee cannot freely choose a longer-run goal for employment,

  • it can estimate the level of maximum employment and use that estimate

  • to inform its policy decisions.

  • The Committee considers a wide range of indicators in making its assessments

  • of maximum employment, recognizing

  • that such assessments are necessarily uncertain

  • and subject to revision over time.

  • For example, in the latest set of projections that have been distributed to you,

  • Committee participants' estimates of the longer-run normal rate

  • of unemployment have a central tendency of 5.2 percent

  • to 6.0 percent-roughly unchanged from last January

  • but higher than the corresponding interval several years ago.

  • As I noted, the level of maximum employment is not immutable; in particular,

  • it could be increased by effective policies, such as education

  • and training that improve workforce skills.

  • If the Committee's assessments pointed to an increase

  • in the maximum attainable level of employment,

  • our policy strategy would be modified appropriately to aim at the higher level.

  • In setting monetary policy, the Committee seeks to mitigate deviations

  • of inflation from its mandate-consistent rate and deviations of employment

  • from our assessments of its maximum level.

  • These dual objectives are generally complementary.

  • For example, under present circumstances,

  • in which the unemployment rate is elevated and the inflation outlook is subdued,

  • the Committee judges that sustaining a highly accommodative stance

  • of monetary policy is consistent with promoting both objectives.

  • And in the longer term, low and stable inflation can help promote healthy growth

  • in output and employment.

  • Of course, circumstances may sometimes arise

  • in which the dual objectives are not complementary.

  • In such cases, the Committee follows a balanced approach

  • in promoting these two objectives, taking into account the magnitude

  • of the deviations and potentially different time horizons over which inflation

  • and employment are projected to return

  • to levels judged consistent with our mandate.

  • In other words, the Committee always treats its primary objectives

  • of price stability and maximum employment symmetrically,

  • and the stance of policy at any given time is determined by the size,

  • social cost, and expected evolution of the deviations of each

  • of the Committee's policy objectives from its desired level.

  • I will now turn to the economic projections of the 17 FOMC participants-that is,

  • 5 Board members and 12 Reserve Bank presidents-submitted

  • in conjunction with today's meeting.

  • The central tendencies and ranges of those projections for the years 2011

  • to 2014 and over the longer run are depicted in the figures

  • that have been distributed.

  • The longer-run projections-shown at the right

  • of each figure-represent participants' assessments of the rate

  • to which each variable will converge over time under appropriate monetary policy

  • and in the absence of further shocks to the economy.

  • Incoming information suggests that the economy has been expanding moderately,

  • notwithstanding some slowing in global growth.

  • The Committee expects the pace of economic growth to be,

  • over coming quarters-to be moderate over coming quarters,

  • reflecting ongoing drags from the housing sector

  • and still-tight credit conditions for many households and smaller businesses.

  • Specifically, participants' projections for the growth rate

  • of real gross domestic product

  • in 2012 have a central tendency of 2.2 to 2.7 percent.

  • Strains in global financial markets continue

  • to pose significant downside risks to that outlook.

  • Looking further ahead, economic activity is expected to accelerate gradually

  • in conjunction with strengthening consumer and business confidence,

  • improving financial conditions,

  • and the continuation of a highly accommodative stance for monetary policy.

  • Specifically, participants' GDP projections for 2013 have a central tendency

  • of 2.8 to 3.2 percent, and their projections for 2014 have a central tendency

  • of 3.3 to 4.0 percent, noticeably higher than the central tendency of 2.3

  • to 2.6 percent for their longer-run growth projections.

  • A number of recent indicators point to some further improvement

  • in overall labor market conditions, but the unemployment rate remains elevated.

  • Moreover, in light of the anticipated modest pace of economic recovery,

  • the Committee expects that over coming quarters the unemployment rate will

  • decline only gradually toward its mandate-consistent levels.

  • Indeed, participants' projections for the unemployment rate

  • in the fourth quarter of this year have a central tendency of 8.2 to 8.5 percent

  • that is little different from the latest monthly reading of 8.5 percent.

  • With economic growth expected to pick up somewhat over time,

  • the unemployment rate is expected to decline to 6.7 to 7.6 percent

  • by the fourth quarter of 2014-still well above participants' estimates

  • of the longer-run normal rate of unemployment.

  • I'll turn now to the outlook for inflation.

  • The prices of oil and other commodities have generally flattened out

  • or turned downward over the past couple of quarters,

  • while low levels of resource utilization have continued

  • to constrain the growth of labor costs.

  • Consequently, consumer price inflation-which surged in the first half

  • of last year-has been subdued in recent months.

  • Survey measures and financial market indicators imply

  • that longer-term inflation expectations have remained stable.

  • Over coming quarters, the Committee anticipates that inflation will run at

  • or below levels consistent with the mandate-consistent rate of 2 percent.

  • Specifically, participants' inflation projections have a central tendency of 1.4

  • to 1.8 percent for 2012 and remain subdued

  • at aroundto 2 percent through 2014.

  • As a further step in enhancing the clarity of our communications,

  • the Committee recently decided to begin publishing information

  • about participants' assessments of appropriate monetary policy-that is,

  • the path of policy that each participant judges as most likely

  • to foster mandate consistent outcomes for employment and inflation

  • if the economy evolves as expected.

  • These judgments about future policy underlie the participants' projections

  • of growth, unemployment, and inflation that I just described.

  • Rather-excuse me-Importantly,

  • these policy assessments should not be viewed as unconditional pledges.

  • Rather, just as with our economic projections,

  • these policy projections reflect the information available at the time

  • of the forecast and are subject to future revision in light

  • of evolving economic and financial conditions.

  • In the chart labeled "Appropriate Timing of Policy Firming,"

  • each shaded bar indicates the number of Committee participants who judge

  • that the initial increase in the target federal funds rate would appropriately

  • occur in the specified calendar year shown below the bar.

  • Six participants anticipate that policy firming is likely to commence in 2015

  • or 2016, while five others expect policy firming to commence in 2014.

  • The remaining six participants judge

  • that policy liftoff would be appropriate in 2012 or 2013.

  • More detail is provided by the chart labeled

  • "Appropriate Pace of Policy Firming."

  • In that chart, the dots depict the distribution

  • of participants' assessments regarding the appropriate level

  • of the target federal funds rate at the end of each

  • of the next several years and over the longer run.

  • For example, based on current information,

  • 11 participants expect that the appropriate federal funds rate at the end

  • of 2014 will be at or below 1 percent,

  • while 6 participants anticipate higher rates at that time.

  • In effect, those judgments are reflected in today's meeting statement,

  • in which the Committee indicated that economic conditions "are likely

  • to warrant exceptionally low levels for the federal funds rate

  • at least through late 2014."

  • As I have noted, we are also proceeding with the program that we announced

  • in September to extend the average maturity of the Federal Reserve's holding

  • of securities, thereby fostering more accommodative financial conditions

  • without changing the overall size of the Federal Reserve's balance sheet.

  • The Committee regularly reviews the size and composition

  • of our securities holdings, and we will adjust those holdings as appropriate.

  • In particular, the Committee recognizes the hardships imposed by high

  • and persistent unemployment and an underperforming economy,

  • and it is prepared to provide further monetary accommodation

  • if employment is not making sufficient progress toward our assessments

  • of its maximum level or if inflation shows signs

  • of moving further below its mandate-consistent rate.

  • Thank you for your patience.

  • I'll be happy to take your questions.

  • STEVE LIESMAN.

  • Thank you.

  • Steve Liesman, CNBC.

  • Mr. Chairman, we've had several months of economic data that's been stronger

  • than most forecasters expected-employment was over 200,000,

  • the unemployment rate's come down topercent-but there seems

  • to be very little mention of this recent strength in the statement.

  • Do you and the Committee, Mr. Chairman,

  • harbor doubts about the recent strength in the economy?

  • And are you and the Committee baking in additional quantitative easing in order

  • to achieve the growth rates that you've even forecast here?

  • Thank you.

  • CHAIRMAN BERNANKE.

  • Steve, there's certainly been some encouraging news recently.

  • We've seen slightly better performance in the labor market,

  • consumer sentiment has improved,

  • industrial production has been relatively strong-so there are some positive

  • signs, no doubt.

  • At the same time, we've had mixed results in some other areas,

  • such as retail sales, and we continue to see headwinds emanating from Europe,

  • coming from the slowing global economy and some other factors as well.

  • So, you know, we are obviously hoping that the strength we saw

  • in the fourth quarter and in recent data will continue into 2012,

  • but we're going to continue to monitor that situation.

  • I don't think we're ready to declare that we've entered a new,

  • stronger phase at this point; we'll continue to look at the data.

  • We will, as I've said in my statement,