On Thursday, September 13, 2012 Ben Bernanke gave his scheduled press conference.
Below 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 September 13, 2012, with accompanying "FOMC Statement" and "Economic Projections of Federal Reserve Board Members and Federal Reserve Bank Presidents, September 2012" (pdf).
From Ben Bernanke's opening comments:
As you know, the Federal Reserve conducts monetary policy under a dual mandate from Congress to promote maximum employment and price stability. The United States has enjoyed broad price stability since the mid-1990s and continues to do so today. The employment situation, however, remains a grave concern.
also:
The weak job market should concern every American. High unemployment imposes hardship on millions of people, and it entails a tremendous waste of human skills and talents. Five million Americans have been unemployed for more than six months, and millions more have left the labor force--many of them doubtless because they have given up on finding suitable work. As the skills of the long-term unemployed atrophy and as their connections to the labor market wither, they may find it increasingly difficult to get good jobs, to their and their families’ cost, of course, but also to the detriment of our nation’s productive potential.
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Accordingly, the FOMC decided today on new actions, electing to expand its purchase of securities and extend its forward guidance regarding the federal funds rate. Specifically, the Committee decided to purchase additional agency mortgage–backed securities (MBS) at a pace of $40 billion per month. The new MBS purchases--combined with the existing maturity extension program and the continued reinvestment of principal payments from agency debt and agency MBS already on our balance sheet--will result in an increase in our holdings of longerterm securities of about $85 billion each month for the remainder of the year. The program of MBS purchases should increase the downward pressure on long-term interest rates more generally, but also on mortgage rates specifically, which should provide further support to 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 labor market, we will continue the MBS purchase program, undertake additional asset purchases, and employ our policy tools as appropriate until we do. We will be looking for the sort of broad-based growth in jobs and economic activity that generally signal sustained improvement in labor 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.
Bernanke’s responses as indicated to the various questions:
ZACHARY GOLDFARB: Thank you Mr. Chairman. Earlier this year, two occasions, the Fed took policy actions which you defended as extremely important for the economy but as you mentioned, there hasn't been any improvement in the labor markets since the beginning of the year. Why should people believe this will make a difference? And, the projections seem to suggest it's approximately a 0.4 reduction on unemployment. Is that the limit of what Fed policies can do going forward?
CHAIRMAN BERNANKE: Well our assessment, I talked about this at my remarks at Jackson Hole. Our assessment and that of the research literature is that the polices we've undertaken have had real benefits for the economy, that they have provided some support, that they have eased financial conditions, and help reduce unemployment. All that being said, monetary policy, as I've said many times, is not a panacea. It's not by itself able to solve these problems. We're looking for policy makers in other areas to do their part. We'll do our part and we'll try to make sure that unemployment moves in the right direction but we can't solve this problem by ourselves.
CHAIRMAN BERNANKE: Well our assessment, I talked about this at my remarks at Jackson Hole. Our assessment and that of the research literature is that the polices we've undertaken have had real benefits for the economy, that they have provided some support, that they have eased financial conditions, and help reduce unemployment. All that being said, monetary policy, as I've said many times, is not a panacea. It's not by itself able to solve these problems. We're looking for policy makers in other areas to do their part. We'll do our part and we'll try to make sure that unemployment moves in the right direction but we can't solve this problem by ourselves.
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MIKE MCKEE: You've made an eloquent explanation over the past couple of weeks of the Fed's ability to lower interest rates. But what's missing for many economists is how the transmission mechanism is going to work. Most people think this will have a minimal effect on rates. Can you give us an idea of how much you think it might push rates down? And why moving rates down a few basis points might change demand which seems to be the problem in the economy?
CHAIRMAN BERNANKE: Well, the ultimate effect is going to depend of course on how much we end up doing and that in turns is going to be depend what the economy does. And this is a conditional program. We're going to providing accommodation according to how the economy evolves. I think that's the virtue of putting it this ways is that if the economy is weaker, we'll provide more support. If the economy strengthens on its own or other head wins die down then it will require less supports. So the amount of support we provide is going to depend on how the economy evolves. We do think that these policies can bring interest rates down. Not just treasury rates but a whole range of rates, including mortgage rates and rates for corporate bonds and other types of important interest rates. It also affects stock prices. It affects other asset prices, home prices for example. So looking at all the different channels of effect, we think it does have impact on the economy, it will have impact on the labor market but as again, the way I would describe it is a meaningful effect, a significant effect but not a panacea, not a solution for the whole issue. We're just trying to get the economy to move in the right direction to make sure that we don't stagnate at high levels of unemployment, that we're making progress towards more acceptable levels of unemployment.
CHAIRMAN BERNANKE: Well, the ultimate effect is going to depend of course on how much we end up doing and that in turns is going to be depend what the economy does. And this is a conditional program. We're going to providing accommodation according to how the economy evolves. I think that's the virtue of putting it this ways is that if the economy is weaker, we'll provide more support. If the economy strengthens on its own or other head wins die down then it will require less supports. So the amount of support we provide is going to depend on how the economy evolves. We do think that these policies can bring interest rates down. Not just treasury rates but a whole range of rates, including mortgage rates and rates for corporate bonds and other types of important interest rates. It also affects stock prices. It affects other asset prices, home prices for example. So looking at all the different channels of effect, we think it does have impact on the economy, it will have impact on the labor market but as again, the way I would describe it is a meaningful effect, a significant effect but not a panacea, not a solution for the whole issue. We're just trying to get the economy to move in the right direction to make sure that we don't stagnate at high levels of unemployment, that we're making progress towards more acceptable levels of unemployment.
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PEDRO DA COSTA: Pedro da Costa from Reuters. My question is I want to go back to the transmission mechanism because speaking to people on the sidelines of Jackson Hole conference that seemed to be the concern about the remarks that you made is that they could clearly see the effect on rates and they could see the effect on the stock market but they couldn't see how that had helped the economy. So I think there's a fear that over time, this has been a policy that's helping Wall Street but not doing that much for Main Street. So could you describe in some detail how does it really different--differ from trickle-down economics where you just pumped money into the banks and hope that they lend?
CHAIRMAN BERNANKE: Well we are--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 the objective. Our tools involve, I mean the tools we have, involve affecting financial asset prices and that's--those are the tools of monetary policy. There are a number of different channels, mortgage rates, I mentioned, other interest rates, corporate bond rates, but also the prices of various assets, like for example, the prices of homes. So 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'll, you know, 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. And if people feel that their financial situation is better because their 401(k) looks better for whatever reason, their house is worth more, they are more willing to go out and spend and that's going to provide the demand that firms need in order to be willing to hire and to invest.
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MARCY GORDON: Marcy Gordon, with the Associated Press. One of the aspects we've seen in recent reports on unemployment is the shrinking labor force. Is that something that’s of specific concern to you and what does it tells us about the labor market and the economy?
CHAIRMAN BERNANKE: You--you are absolutely right. And as I mentioned earlier, the--the unemployment decline last month was more than 100 percent accounted for by declines in participation. Some decline in participation is anticipated as is expected. We're an aging society. We have more--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--is cyclical. Part of it reflects the fact that some people--because they have essentially given up or at least are very discouraged have decided to leave the labor force. And the anticipation is that if the economy really were to strengthen, the labor markets were to strengthen at least some of those people would come back in the labor force, they might even temporarily raise the unemployment rate because they're now looking again. So the participation rate over and above the decline in participation rate over and above the downward trend is just one of the other indicators of a general weak labor market. That's why I said earlier that 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 labor market is still in quite weak condition.
CHAIRMAN BERNANKE: You--you are absolutely right. And as I mentioned earlier, the--the unemployment decline last month was more than 100 percent accounted for by declines in participation. Some decline in participation is anticipated as is expected. We're an aging society. We have more--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--is cyclical. Part of it reflects the fact that some people--because they have essentially given up or at least are very discouraged have decided to leave the labor force. And the anticipation is that if the economy really were to strengthen, the labor markets were to strengthen at least some of those people would come back in the labor force, they might even temporarily raise the unemployment rate because they're now looking again. So the participation rate over and above the decline in participation rate over and above the downward trend is just one of the other indicators of a general weak labor market. That's why I said earlier that 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 labor market is still in quite weak condition.
Thank you.
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The Special Note summarizes my overall thoughts about our economic situation
SPX at 1465.77 as this post is written
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