FOMC Press Conference - 2011-06-22
Central bank: fed | Type: press_conference | Date: 2011-06-22

June 22, 2011 Chairman Bernanke’s Press Conference FINAL
Transcript of Chairman Bernanke’s Press Conference
June 22, 2011
CHAIRMAN BERNANKE. Good afternoon and welcome.
In my opening remarks today, I’ll briefly review today’s policy decision. And I’ll place
the decision in the context of our economic projections and our policy strategy. I’ll then be glad
to take your questions. Throughout today’s briefing, my goal will be to reflect the consensus of
the Committee while taking note of the diversity of views, as appropriate. Of course, my
remarks and interpretations are my own responsibility.
As indicated in the policy statement released earlier this afternoon, the Committee
decided today to keep the target range for the federal funds rate at 0 to ¼ percent. The
Committee continues to anticipate that economic conditions—inclu ding low rates of resource
utilization and a subdued outlook for inflation in the medium run—are likely to warrant
exceptionally low levels for the federal funds rate for an extended period. The Committee’s
planned purchases of $600 billion of longer-term Treasury securities will be completed by the
end of this month, and the Committee will continue to reinvest principal payments from its
securities holdings going forward.
In conjunction with today’s meeting, the FOMC participants submitted projections for
economic growth, the unemployment rate, and the inflation rate for the years 2011 to 2013 and
over the longer run. These projections are conditional on each participant’s individual
assessment of the appropriate path of monetary policy needed to best promote the Committee’s
objectives. I’ll focus on the information shown in the figures that have been distributed. In each
figure, the dark area denotes the central tendencies of our current projections, while the lighter
shaded area denotes the full range of projections. The longer-run projections, shown at the right
June 22, 2011 Chairman Bernanke’s Press Conference FINAL
of each figure, represent participants’ assessments of the rate to which each variable will
converge over time under appropriate monetary policy and assuming no further shocks to the
The longer-run projections for output growth have a central tendency of 2.5 to
2.8 percent, and the longer-run projections for the unemployment rate have a central tendency of
5.2 to 5.6 percent—the same as in our April projec tions. These projections may be interpreted as
indicating participants’ current estimates of the economy’s normal or trend rate of growth and its
normal unemployment rate over the longer run respectively. It should be noted that these
estimates are inherently uncertain and subject to revision, because longer-run rates of economic
growth and unemployment are determined largely by nonmonetary factors that may evolve over
time and that often cannot be directly measured.
The central tendency of the longer-run projections for inflation, as measured by the price
index for personal consumption expenditures, is 1.7 to 2.0 percent. Since the longer-run inflation
outlook is determined almost entirely by monetary policy, these projections can be interpreted as
indicating the inflation rate that each of the participants judge to be consistent with the Federal
Reserve’s mandate of fostering maximum employment and stable prices. In effect, the “mandate
consistent” inflation rate is judged to be 2 percent or a bit less.
I now turn to the contours of the Committee’s economic outlook. As indicated in today’s
policy statement, the economic recovery appears to be proceeding at a moderate pace, though
somewhat more slowly than the Committee had expected, and some recent labor market
indicators have also been weaker than expected. For example, the unemployment rate has risen
by 0.3 percentage points since March, and new claims for unemployment insurance have moved
somewhat higher.
June 22, 2011 Chairman Bernanke’s Press Conference FINAL
The reduced pace of the recovery partly reflects factors that are likely to be temporary.
In particular, consumers’ purchasing power has been damped by higher food and energy prices;
and the aftermath of the tragic earthquake and tsunami in Japan has been associated with
disruptions in global supply chains, especially in the auto sector. However, some moderation in
gasoline prices is now in prospect, and the effects of the Japanese disaster on manufacturing
output are likely to dissipate in coming months.
Consequently, as shown in the first figure, entitled “Change in Real GDP,” the
Committee expects that the pace of economic recovery will pick up over coming quarters.
Specifically, participants’ projections for output growth have a central tendency of about 2.7 to
2.9 percent for this year and 3.3 to 3.7 percent for next year—growt h rates faster than we have
seen so far in 2011. However, Committee participants have also generally responded to the
recent slowing by marking down the growth projections for 2011 and 2012, which are nearly a
half percentage point lower than our April projections. Looking further ahead, the central
tendency of the growth projections for 2012—2013, sorry—is 3.5 to 4.2 percent, essentially the
same as in the April projections.
As shown in the second figure, entitled “Unemployment Rate,” the unemployment rate is
expected to resume its gradual decline towards levels that the Committee judges to be consistent
with this dual mandate. In particular, the unemployment rate is projected to edge down over
coming months to 8.6 to 8.9 percent in the fourth quarter of this year and then decline gradually
over the subsequent two years to a level of 7.0 to 7.5 percent in the fourth quarter of 2013, still
well above the central tendency of participants’ longer-run unemployment projections. In short,
we expect the unemployment rate to continue to decline, but the pace of progress remains
frustratingly slow.
June 22, 2011 Chairman Bernanke’s Press Conference FINAL
Inflation has moved up in recent months, mainly reflecting higher prices for some
commodities and imported goods. In addition, prices of motor vehicles have risen notably as a
result of the recent supply chain disruptions. However, as the effects of these factors dissipate,
the Committee anticipates that inflation will subside in coming quarters to levels at or below its
mandate-consistent rate, as shown in the figure entitled “PCE Inflation.” Specifically, the central
tendency of participants’ inflation projections is 2.3 to 2.5 percent for this year but declines to
1.5 to 2.0 percent in both 2012 and 2013—a trajectory th at is broadly similar to that of our April
projections.
The economic outlook provides important policy context. In particular, the Committee’s
policy strategy is intended to foster both aspects of our dual mandate—that is, promoting the
economic recovery so that the unemployment rate returns over time to its longer-term normal
level, and ensuring that inflation, over time, is at levels consistent with our mandate. At
9.1 percent, the current unemployment rate remains elevated, and progress towards more normal
levels of unemployment is likely to be slow, as I noted. Moreover, the inflation rate, which
picked up in recent months, is expected to subside to levels at or below the rate of 2 percent, or a
bit less, that most participants judge to be most consistent with the dual mandate. The ongoing
labor market slack and the subdued inflation outlook are key reasons for the Committee’s
decision to maintain the current high degree of monetary policy accommodation and for our
judgment that exceptionally low levels of the funds rate are likely to be warranted for an
extended period.
Thank you. I’d be glad to take your questions.
JON HILSENRATH. Jon Hilsenrath from the Wall Street Journal. Mr. Chairman, the
FOMC says that it will maintain short-term interest rates at an exceptionally low level for an
June 22, 2011 Chairman Bernanke’s Press Conference FINAL
extended period. Does that policy—or, does that guidance also apply for the Fed’s securities
holdings? In other words, will they be maintained at a very high level for an extended period?
CHAIRMAN BERNANKE. We haven’t made any such commitment. It’s true that
when we begin to allow the portfolio to run off rather than reinvesting, that would be a first step
in a process of exiting from our currently highly accommodative policies. But we’ve not yet
chosen to make any particular commitment about the time frame. But we’ll be looking at the
outlook and trying to assess when the appropriate time is to take that step.
JON HILSENRATH. If I may follow up, why give guidance on—sorry. If I may follow
up, why give guidance on one policy tool but not give guidance on another policy tool when the
Fed has talked about those two policy tools working together?
CHAIRMAN BERNANKE. No, that’s a good question. It’s something we have on the
table, something we’ve thought about. But to this point, we haven’t taken that step.
GREG IP. Mr. Chairman, the Committee lowered not just this year’s central tendency
forecast but also 2012. And yet, the statement of the Committee attributes most of the revision
forecast to temporary factors. So I was wondering if you could explain what seems to be
persisting in terms of holding the recovery back. I did see the statement says, “in part” to factors
that are likely to be temporary. Are there more permanent factors that are producing a worse
outlook than three months ago?
CHAIRMAN BERNANKE. Well, as you—as you point out, what we say is that the
temporary factors are “in part” the reason for the slowdown. In other words, part of the
slowdown is temporary, and part of it may be longer lasting. We do believe that growth is going
to pick up going into 2012 but at a somewhat slower pace from—than we had anticipated in
April. We don’t have a precise read on why this slower pace of growth is persisting.
June 22, 2011 Chairman Bernanke’s Press Conference FINAL
One way to think about it is that maybe some of the headwinds that have been concerning
us, like, you know, weakness in the financial sector, problems in the housing sector, balance
sheet and deleveraging issues—some of these headwi nds may be stronger or more persistent than
we thought. And I think it’s an appropriate balance to attribute a slowdown partly to these
identifiable temporary factors but to acknowledge a possibility that some of the slowdown is due
to factors which are longer lived and which will be still operative by next year. You note that, in
2013, we have growth at about the same rate that we anticipated in April.
STEVE LIESMAN. Mr. Chairman, could you describe to what extent the situation in
Greece and Europe was discussed at the meeting and what policy conclusions were reached?
And also could you tell us whether or not, in response to the recent slowdown, there was a
discussion about further easing?
CHAIRMAN BERNANKE. Well, with respect to Greece, that’s obviously very
important. That—it’s a very difficult situati on. We’ve been in close communication with our
colleagues in Europe—obviously not part of the negotiations, but we’ve been kept well
informed. We had a G-7 call over the weekend, for example. I think the Europeans appreciate
the incredible importance of resolving the Greek situation. If there were a failure to resolve that
situation, it would pose threats to the European financial system, the global financial system, and
to European political unity, I would conjecture as well. So, yes, we did discuss it. It’s one of
several potential financial risks that we’re facing now. But, again, we are mostly just following
the—the situation closely and making sure that, as best we can, that our own institutions are well
positioned relative to sovereign debt in the so-called peripheral countries.
With respect to additional asset purchases, we haven’t taken any action, obviously, today.
We’ll be reviewing the outlook going forward. It will be a Committee decision. I think the point
June 22, 2011 Chairman Bernanke’s Press Conference FINAL
I would make, though, in terms of where we are today versus where we were, say, in August of
last year when I began to talk about asset purchases, is that at that time, inflation was very low
and falling. Many objective indicators suggested that deflation was a nontrivial risk. And I think
that the securities purchases have been very successful in eliminating deflation risk. I don’t think
people appreciate necessarily that deflation can be a very pernicious situation where it could
have very long-lasting effects on economic growth.
In addition, growth in payrolls has actually picked up. In the four months before the
Jackson Hole speech in August, there was about an 80,000 per month payroll increase. So far in
2011, including the weak payroll report in May, the average is closer to 180,000. So there has
been improvement in the labor market, albeit not as strong as we would like. As of last August,
we were essentially missing significantly in both—on both sides of our mandate. Inflation was
too low and falling, and unemployment looked like it might be even beginning to rise again. In
that case, the case for monetary action was pretty clear in my mind. I think we are in a different
position today—certainly not where we’d like to be, but closer to the dual-mandate objectives
than we were at that time. So, again, the situation is different today than last August, but we’ll
continue to monitor the economy and act as needed.
LUCA DILEO. Luca DiLeo, Dow Jones. Would budget cuts, which may begin at the
end of this year, help or hinder the economy? This goes back to the other question: What’s
fiscal policy like in the 2012 growth forecast?
CHAIRMAN BERNANKE. The effect of fiscal cuts on the economy depends very much
on the timing. I’ve advocated that the negotiations about the budget focus on the longer term,
say, 10 years, which is the budget window, or even longer if you’re taking into account
entitlement reform, for example. By taking a long-run perspective, we can help the economy by
June 22, 2011 Chairman Bernanke’s Press Conference FINAL
reducing the risk that interest rates might rise suddenly. We may help increase confidence in the
part of households and businesses. And so I think it’s very desirable that we take strong action to
lower our budget deficits over the longer term.
In doing that, I think it would be best not to—in light of the weakness of the recovery, it
would be best not to have sudden and sharp fiscal consolidation in the very near term. That
doesn’t do so much for the long-run budget situation. It just is a negative for growth. So my
answer is that it depends very much on the timing, and I hope that the congressional negotiators
will take a longer-term view as they—as they discuss the issue.
DARREN GERSH. Darren Gersh with Nightly Business Report on PBS. If I could
follow up on what he just said, there seems to be a growing view in the country that the deficit is
the problem with jobs, and that immediate cuts in the deficit would grow the economy and
immediately create jobs. Many economists disagree with that. Do you want to go a little further
and maybe talk about that issue, and whether you agree with that view that seems to be taking
CHAIRMAN BERNANKE. I don’t think that sharp, immediate cuts in the deficit would
create more jobs. I think in the very short run that we are seeing already a certain amount of
fiscal drag coming from state and local governments, as well as from the withdrawal of previous
federal stimulus. So I think in the very short run that, you know, the fiscal tightening is—is, at
best, neutral but probably somewhat negative for job creation.
I think what people will understand, should understand, is that our budgetary problems
are very long run in nature. The projections made by the CBO, for example, talk about where
our debt-to-GDP ratio will be in 2020, 2025, and so on. That doesn’t mean we should wait to
act. The sooner we can act, the better. But the most efficient and effective way to address our
June 22, 2011 Chairman Bernanke’s Press Conference FINAL
fiscal problems—and, again, I think this is extremely important—is to take a longer-run
perspective, not to focus the cuts heavily on the near term. But by taking a long-run perspective
and making a credible plan for reducing future deficits, we’ll lower interest rates, or at least
prevent them from rising, and we will increase confidence. And that could be very constructive.
But if it’s entirely focused on the near term, I don’t think that’s the optimal way to proceed.
NEIL IRWIN. Mr. Chairman, Neil Irwin with the Washington Post. Do you believe that
the FOMC has the authority to set a, say, 2 percent inflation target on its own, unilaterally, or do
you believe that it would need to go to Congress to get that target made more explicit? If the
former, are you considering doing it? If the latter, are you considering going to Congress to ask
them to do it?
CHAIRMAN BERNANKE. Well, Neil, as you know, I’ve been a long-time proponent
of an inflation target. I think that it would help anchor inflation expectations; it would make it
easier to reach our inflation objective. At the same time, it’s not at all inconsistent with our
employment objective because keeping inflation low and stable, keeping inflation expectations
low and stable, actually gives the Fed more leeway to respond to short-term shocks to the
economy. So I think it’s something, you know, that is worth considering.
In terms of authorities, I would just say that there are multiple models around the world.
So, for example, in the European Central Bank, that bank has a mandate for price stability,
period. And they set their own definition of that using input from economists and others. So I
don’t think there’s a real barrier to setting a target. However, it is very important that, first, that
we communicate to the public what we’re doing. Without sufficient explanation and
background, many people might think that we were somehow abandoning our employment
target. So we need to make sure that that’s well understood both by the public and by Congress
June 22, 2011 Chairman Bernanke’s Press Conference FINAL
that having a target would not mean that we were abandoning the other leg of the dual mandate.
Also, you asked about consulting with Congress. I think under any circumstances, it would be
important to take the pulse of Congress. They—w e might have the legal authority to do this, but
I think we do need some buy-in from the Administration and Congress to take that step. We are
continuing to periodically discuss this issue. It’s been part of our ongoing communications
discussion, which included this press conference as one innovation, for example. There’s
nothing imminent. But, again, we’ll continue to discuss this, and, as appropriate, we’ll be
consulting about it.
BINYAMIN APPELBAUM. Binya Appelbaum, the New York Times. What is your
assessment of the impact on the United States economy if there is a default by one or more
European nations? What steps has the Fed taken to assess the consequences for American
financial institutions? And, in particular, have you examined the impact on derivatives holdings
outside of the regulated financial system?
CHAIRMAN BERNANKE. Well, to answer your second question first, we have been
very assiduous in examining the exposures of financial institutions to the so-called peripheral
countries. The answer is that the banks that we regulate are not significantly exposed to—to
those countries directly, at least. They have significant exposures to European banks in the
nonperipheral countries, and so indirectly, they have that exposure. The—and that statement
which I just made includes credit default swaps and so on. The gross numbers that the BIS
publishes do not fully account for a wide variety of hedges and other positions. So we have
asked the banks to essentially do stress tests and ask, looking at all their positions, all their
hedges, What would the effect on their capital be if Greece defaulted? And the answer is that the
effects are very small.
June 22, 2011 Chairman Bernanke’s Press Conference FINAL
It’s also the case that—well, we don’t oversee the money market mutual funds. We have
been keeping a close eye on that situation. There again, the situation is similar in some sense, in
that except—with very few exceptions, the money market mutual funds don’t have much direct
exposure to the three peripheral countries which are currently dealing with debt problems. They
do have very substantial exposure to European banks in the so-called core countries: Germany,
France, et cetera. So to the extent that there is indirect impact on—on the core European banks,
that does pose some concern to money market mutual funds and is a reason why the Federal
Reserve and other regulators are continuing to look at ways to strengthen money market mutual
In terms of the impact of the problem in Greece on the United States, as I’ve indicated,
the direct exposures are pretty small, and we’re doing all we can to monitor those exposures.
However, as we saw in a small situation, a small case last spring, a disorderly default in one of
those countries would no doubt roil financial markets globally. It would have a big impact on
credit spreads, on stock prices, and so on. And so, in that respect, I think the effects on the
United States would be quite significant.
DONNA BORAK. Mr. Chairman, Donna Borak with American Banker. To talk
about—further about banks, as you know, global regu lators are meeting this week to finalize a
proposal that would name the world’s most significantly banks and as well as a surcharge. There
are some that are arguing that regulators are going too far, too fast. And I’m wondering, for
regulators, you know, where is the line where you—to pass, where you go too far, and you do
hurt credit lending and inevitably hurt the economy?
CHAIRMAN BERNANKE. So I’ll be attending that meeting, and so I’ll have a chance
to hear others’ views and to contribute to that discussion. It’s only been two years since we had
June 22, 2011 Chairman Bernanke’s Press Conference FINAL
the worst financial crisis certainly since the Great Depression and possibly in the history of the
United States. And the failure or near failure of large financial institutions was a major
contributor to that crisis. Since we can’t know exactly what threats will come in the future,
probably the best all-purpose way of strengthening the balance sheets of banks and other
financial institutions is by capital. And I’m very supportive of increased capital to—and better
quality capital—to help ensure that these banks w ill be stable and able to lend in the event of
another crisis, which I hope we don’t, of course, ever see.
In terms of the SIFI surcharge, so-called, I think it’s also appropriate to have additional
capital requirements for the largest and most systemically important institutions. After all, it’s
because their failure would have very deleterious effects in the financial system, we need to take
extra steps to make sure that they will be very unlikely to fail. In addition, it provides some
more level playing field because, by having higher equity requirements, the largest institutions
avoid some of the funding advantages that would otherwise accrue to firms that are viewed as
being too big to fail. So I think it’s very important to do that. And we’ll be negotiating,
discussing with our colleagues internationally what the appropriate number of firms is, what the
appropriate criteria are, and what the amount of capital should be. In choosing the amount of
capital, we will certainly be trying to weigh off and balance, on the one hand, the need for extra
safety of systemically important firms against the impacts on lending and so on. Although I
would note that, since systemically important firms are only part of the banking system, to the
extent that they reduce their lending, some of that lending might go to other institutions.
In terms of going too far, you know, it’s very, very difficult to make a broad-based
assessment of the overall impact of all of the rules and regulations. But I would like to make
clear that, both by law and by our internal practices, the Federal Reserve does cost-benefit
June 22, 2011 Chairman Bernanke’s Press Conference FINAL
analysis of every rule that we write, and we publish those. So we are looking at the cost-benefit
for these regulations. Moreover, we have worked with—the Federal Reserve has worked
actively with the BIS, the Basel Committee, to do analyses of the effects of capital requirements,
on the one hand, on the probability of a crisis, and on the other hand, on the cost of lending and
the effect on growth. Those studies have been published. And if you look at them, you’ll see
that we believe that the capital which has been imposed so far would significantly reduce the
threat of a massive financial crisis and, on the other hand, have very small effects on growth. So
I don’t think we’re on the wrong side of that tradeoff at this point.
ROBIN HARDING. Robin Harding from the Financial Times. Mr. Chairman, you now
expect that both headline and core inflation would be close to your long-run objective in 2012
and 2013 while unemployment remains high. Does that mean you think the medium-term
tradeoff between inflation and growth has got worse? And, furthermore, can I ask—Has the
unexpected rise in core inflation changed your understanding of the output gap? Thank you.
CHAIRMAN BERNANKE. Well, to address the latter question first, that’s a possibility.
As you saw from the—but as you saw from the projections we just put out, the Committee—
every member of the Committee sees the long-run unemployment rate—the NAIRU, as it’s
called by economists—somewhere around 5½ percent, ba sically. So that would suggest that the
Committee still believes that the output gap is quite large. With respect to core inflation, some
of the effects, at least there, are also temporary. To name two examples, the supply chain
disruptions brought about by the Japanese disaster have led to a very significant increase in auto
prices, both new and used automobiles, last month. As these problems are resolved—and they
appear to be very much on the way to being resolved—we would assume that the auto prices
would come back down and incentives would be restored as competition increases and costs are
June 22, 2011 Chairman Bernanke’s Press Conference FINAL
reduced. So that’s one example. Another would be the fact that energy prices have passed
through to a number of—despite th e fact that core is defined excluding energy, that’s only the
energy, direct energy products—things like airfares, for example, which are very sensitive to the
cost of jet fuel, are also a part of the core. So you would imagine that, as the price of oil
declines, that you would see some bounce—dec line in, also in—in the core measures of
inflation. So given that there’s still a large output gap, given that inflation expectations remain
well anchored, given that some of the temporary factors affecting inflation, including core
inflation, are likely to recede, I think it’s reasonable to think that core inflation will fall back
towards mandate-consistent levels. That being said, I think it’s the case, if you look at the
projections that we have marked up a little bit, the near-term and core projections.
PETER BARNES. Peter Barnes, Fox Business, Mr. Chairman. Mr. Chairman, what is
the extended period right now for exceptionally low fed funds rate—rat es, given the recent
developments in the U.S. and global economic picture? Is it a year or two? And under what
conditions would the extended period be extended even longer? Thank you.
CHAIRMAN BERNANKE. Well, you know, the reason we use terms like “extended
period” is not to be intentionally opaque. The reason is that we don’t know exactly how long. I
think the—I think the thrust of “ex tended period” is that we believe we’re at least two or three
meetings away from taking any further action, and I emphasize “at least.” But depending on
how the economy evolves, and inflation and unemployment, it could be, you know, significantly
longer. It will depend on how the economy and the economic outlook changes. If we do get
both improved job creation and inflation close to our—close to or even above our mandate-
consistent level, then that would be a sign that we need to consider beginning an exit process.
But we’re not there at this point.
June 22, 2011 Chairman Bernanke’s Press Conference FINAL
PETER BARNES. But what about negative conditions—for example, the situation in
Europe becoming a contagion situation?
CHAIRMAN BERNANKE. Well, if the economy worsens and inflation remains
relatively low, then we wouldn’t begin to exit, and, therefore, we wouldn’t change the language.
The expected length of keeping rates low would then be longer, but, again, we wouldn’t want to
give explicit—we could, I suppose, but we have at le ast not chosen so far to give an explicit time
frame, again because it’s our intention to continue to monitor the economy, revise our outlook—
we just revised our outlook fairly significantly since April—and make a judgment based on the
incoming data. So we don’t want to commit ourselves necessarily to a fixed—a fixed time
CRAIG TORRES. Mr. Chairman, Craig Torres from Bloomberg News. Cool fan charts.
CHAIRMAN BERNANKE. Thank you.
CRAIG TORRES. So, all of you have to make policy projections on appropriate policy.
So to get to this world of 2013, when we have above-trend growth and unemployment falling
and inflation at a really nice level, what would your appropriate policy be to get there? Would it
be an early gradual exit, a late steep exit, or no exit?
CHAIRMAN BERNANKE. Well, I don’t think it would be constructive for me to give
you a tentative projection because, obviously, as I’ve indicated, there’s simply no alternative but
to watch the incoming data and to make judgments both in terms of when the exit should begin,
which, at this point, is going to depend on incoming data, but also what the slope of tightening
would be, how quickly we would tighten. So, you know, we all have estimates in our minds, but,
you know, that’s a very far cry from saying that this is what’s going to happen. In a sense, the
FOMC has to forecast its own behavior in the same way it forecasts the economy. And that
June 22, 2011 Chairman Bernanke’s Press Conference FINAL
forecast can change. And given developments in the economy, we might end up doing
something different than what we currently think is most likely.
KEVIN HALL. Kevin Hall of McClatchy Newspapers. If I understand correctly, unlike
your predecessor, you’re actually bringing your own forecast to the FOMC meeting. As a first
among equals, how did you fall in the central tendency? Were you among the three that were
excluded on the high end or the low end? And on the range—where would you put yourself on
the range of the forecasts as a first among equals? And as a side note, I don’t think your
predecessor did this. Why did—what benefits do you get by bringing your own forecast? And
the—your predecessor made headlines recently, s uggesting that we should urgently move back
to the Clinton-era tax levels because of how bad the debt situation could get. Without getting
into the area of Congress, what they should or shouldn’t do, what would be the benefits or costs
of moving back to a 1999 3 percentage point change in the marginal tax rates?
CHAIRMAN BERNANKE. Well, in your first question, I’m a member of the FOMC,
and so I have submitted my own forecasts. I think I would characterize me as—myself as being
pretty consistent with most of my colleagues. I certainly am not taking an outsized extreme view
in any way. And, in particular, I do personally believe that the slowdown is at least partly
temporary, and that we’ll see greater growth going forward. At the same time, I did—I do think
that, given that we can’t explain the entire slowdown, that the best guess would be that growth, at
least in the near term, might be a little bit less than we anticipated.
On tax policy, you know, I think the main point I’d like to make—and as you know, I’m
reluctant to get into specifics of tax and spending policy—the main point I’d like to make is that
we do need very seriously and urgently to address the overall fiscal situation, in particular by
taking a long-run perspective to do that. Exactly how that’s done is really the responsibility of
June 22, 2011 Chairman Bernanke’s Press Conference FINAL
Congress because there are different tradeoffs from different choices. And, of course, those
choices also reflect fundamental values in what—about what you think the government should
do, how much resources the government should command through taxes, and so on. So I don’t
generally make recommendations about specifics. But I do think, in my role as someone who’s
extremely interested in financial stability, that addressing the medium- to long-term deficit
problem is very urgent.
MICHELLE FLEURY. Michelle Fleury, BBC News. Looking at your unemployment
projections, it seems you expect weak growth—weak jobs growth going forward and then a
return to normal, sort of, in the long run. Does this mean, then, you don’t expect that there’s a
structural issue here? And, if not, can you sort of give us a time frame for sort of in the long run,
when we return to normal?
CHAIRMAN BERNANKE. Well, we expect—as the projections show, we expect
growth in the second half of this year and next year to be certainly faster than it’s been so far in
2011. And as a result, we would expect to see healthier job creation numbers. So we should
see—if our forecast is correct , we’ll see payroll numbers improving relatively soon.
In terms of the unemployment rate, though, given that growth is not much above the
long-run potential rate of growth—and we ha ve in our projections an estimate of
2.5 to 2.8 percent, we haven’t really done much better than that—it take s growth faster than
potential to bring down unemployment. And since we’re not getting that, we project
unemployment to come down very painfully slowly. At some point, if growth picks up as we
anticipate, job numbers will start getting better. We’re still some years away from full
employment in the sense of 5½ percent, say, and that’s, of course, very frustrating because it
June 22, 2011 Chairman Bernanke’s Press Conference FINAL
means that many people will be out of work for a very extended time. And that can have
significant long-term consequences that concern me very much.
MARK FELSENTHAL. Mark Felsenthal, with Reuters. Mr. Chairman, given your
response just now, and given the Fed’s belief that the recent uptick inflation is transitory, why
wouldn’t the Fed consider taking more action to stimulate growth? And if it would consider that,
would bond purchases be your preference, or would communications tactics, such as the one
suggested by Jon, also be on the table as you consider how to get the economy growing again?
CHAIRMAN BERNANKE. Well, there are a couple of considerations. One, as I
indicated before, is that the current outlook is significantly different than what we were facing
in—in August of last year. We no longer have a deflation risk. Inflation is above—at the
moment, is above target. We expect it to fall, but we’re no longer— certainly not in any
deflationary situation. And notwithstanding the disappointing news recently, the labor market
has been performing better than it was last year. On top of that, we have an awful lot of
uncertainty right now about how much of this slowdown is temporary, how much is permanent.
So that would suggest, all else equal, that a little bit of time to see what’s going to happen is—it
would be useful in making policy decisions. We’ll continue to look at the outlook and act, you
know, as appropriately as the news comes in and the projections change. We do have a number
of ways of acting; none of them are without risks or costs. We could, for example, do more
securities purchases and structure them in different ways. We could cut the interest on excess
reserves that we pay to banks. And as was suggested by an earlier question—several earlier
questions, actually—Jon’s question about givi ng guidance on the balance sheet or by perhaps
even giving a fixed date, you know, to define “extended period,” those are ways that we could
June 22, 2011 Chairman Bernanke’s Press Conference FINAL
ease further if needed. But, of course, all of these things are somewhat untested. They have their
own costs. But we’d be prepared to take additional action, obviously, if conditions warranted.
AKIHIRO OKADA. Mr. Chairman, I am Akihiro Okada with Yomiuri Shimbun, a
Japanese newspaper. During the Japanese lost decade in the 1990s, you strongly criticized
Japan’s lack of policies. Recently Larry Summers suggested in his column that the U.S. is in the
middle of its own lost decade. Based on those points with QE2 ending, what do you think of
Japan’s experience and the reality facing the U.S.? Are there any historical lessons that we
should be reminded about? Thank you.
CHAIRMAN BERNANKE. Well, I’m a little bit more sympathetic to central bankers
now than I was 10 years ago. I think it’s very important to understand that in my comments—
both in my comment in the published comment a decade ago as well as in my speech in 2002
about deflation—my main point was that a determined central bank can always do something
about deflation. After all, inflation is a monetary phenomenon, a central bank can always create
money, and so on. I also argued—and I think it ’s well understood that deflation, persistent
deflation can be a very debilitating factor in—in growth and empl oyment in an economy. So we
acted on that advice here in the United States, as I just described, in August, September of last
year. We could infer from, say, TIPS prices—inflation index bond pri ces—that investors saw
something on the order of a one-third chance of outright deflation going forward. So there was a
significant risk there. The securities purchases that we did were intended, in part, to end that risk
of deflation. And I think it’s widely agreed that we succeeded in ending that deflation risk. I
think also that our policies were constructive on the employment side. This, I realize, is a bit
more controversial. But we did take actions as needed, even though we were at the zero lower
June 22, 2011 Chairman Bernanke’s Press Conference FINAL
bound of interest rates, to address deflation. So that was the thrust of my remarks 10 years ago.
And we’ve been consistent with that—with that approach.
STEVE BECKNER. Mr. Chairman, Steve Beckner, Market News International. Do you
and your colleagues have a statistical trigger of any sorts, say, a particular level of
unemployment or inflation at which you would begin the exit process? If you do, wouldn’t it
make sense to announce it? If not, why not?
CHAIRMAN BERNANKE. Well, it’s pretty impossible to create a statistical trigger
because we have currently 17 independent members of the FOMC. Each has his or her own
view on the outlook, on the efficacy of monetary policy, and on the risks to inflation and
unemployment. So we don’t have any such formula. We have staff produce, you know, various
scenarios, which give some indication of—given their projections of where the most likely
outcomes, most likely points for a beginning of an exit would be. But as I said earlier when I
was asked about my own projections, those are very tentative, depend on a lot happening, depend
on the forecasts evolving as expected, and are certainly subject to change as new information
DEREK KRAVITZ. Derek Kravitz, Associated Press. On your point about permanent
factors, housing, back in February—actually, November, you had said that a second asset—a
second round of asset purchases would go ahead and ease mortgage rates and make housing
more affordable. You’ve seen housing become more affordable; you’ve seen rates decline. But
you’re seeing underlying fundamentals in the sector still very weak—starts, sales, and prices.
Many economists have pushed back any and all economic forecasts for the sector to 2013–2014
for any meaningful rebound. What could be done for that sector as far as—to stimulate growth?
June 22, 2011 Chairman Bernanke’s Press Conference FINAL
CHAIRMAN BERNANKE. Well, the housing sector is very important to the overall
recovery, and so we’ve paid a lot of attention to that. We did—as you point out, we did succeed
in significantly lowering the mortgage rates. So those who can get credit, together with the low
prices of houses, are at—able to buy much more house than they could have a few years ago.
Unfortunately, there are problems, including the fact that credit standards for mortgages
have tightened quite considerably so that roughly a bottom—the bottom third of people who
might have qualified for a prime mortgage in terms of, say, FICO scores a few years ago cannot
qualify today. So that’s—that’s certainly an important problem. There’s also evidently a lot of
uncertainty about employment, about the economic recovery, and that’s affecting people’s
willingness to make the commitment to buy a house. So there are a number of fundamental
factors which are slowing the housing market down, and they do present very difficult
challenges. The Fed is trying to address this in a number of ways. Of course, our monetary
policy is intended to try to promote employment and income gains, which, of course, will help
housing demand. As regulators, we have recently issued cease-and-desist orders to servicers to
try and improve servicing practices. We work with our regulated banks to ask them to do
modifications where appropriate and to manage their REO—real estate owned—real estate in an
economy-supportive way.
We’ve also—the Federal Reserve has also be en very much involved in giving input to
other agencies which have responsibilities for housing. For example, we have provided advice to
the Treasury on their modification programs. In fact, I am—ex officio, I am the head of the
oversight board for the TARP, which is—now mos tly consists of HAMP, the housing program.
So, in that context, I’m kept well informed. So the Federal Reserve is doing a lot and doing what
it can. I think otherwise I’d like to see just further efforts to—first of all, to modify loans where
June 22, 2011 Chairman Bernanke’s Press Conference FINAL
appropriate; to—and where not appr opriate, to speed the process of foreclosure and disposition
of the foreclosed homes in order to clear the market; get these homes out of the pipeline; and
allow people to, you know, to operate in a market where they’re more confident that prices will
be stable rather than falling. It’s interesting now that—although house prices overall are
declining, all of that is concentrated in distressed properties; that is, houses which are not being
sold on a distressed basis have much more stable prices than those which are being sold on a
distressed basis. And that suggests that, if we can reduce the current number and something of
more than a third, maybe 40 percent of home sales which are on a distressed basis, that would do
a lot to stabilizing the market and helping give people confidence that they can buy, and not be
buying into a falling market.
Thank you very much.