Federal Reserve press conference, 2013-03-20 — Chair Ben Bernanke

Question (Steve Liesman, CNBC): Steve Liesman from CNBC. Mr. Chairman, I have to keep coming back to this issue of adjusting the flow rate. Are we near that time right now? And how can the markets calibrate the number to changes in economic improvement? For example, let’s say, theoretically, we did 236,000 jobs in a month, and the unemployment rate fell by 0.2 percent. Would that be sufficient to begin to adjust the purchases downward? Thank you.
Answer: Well, that’s going to be obviously a decision that the Committee has to make, and we will—at each meeting, we’ll look at progress that’s been made since the last meeting, try to assess the outlook, try to determine whether there’s been a sufficient change to warrant a change in our policy stance. Internally, we’ll use models and other indicators of the state of the labor market to try to make a good estimate of how much we need to change the rate of flow. But, again, the point of this is to let the market see our behavior, to let them see how we respond to changes in the outlook. And that way there will be a better ability, I hope, for the markets to anticipate either a return to higher levels of purchases or the ultimate phasing-out of the program.

Question (Binyamin Appelbaum, New York Times): Binya Appelbaum, the New York Times. I want to go back to asset purchases. You’ve spoken a lot about the power of forward guidance, the power of clear communication. I understand that it’s a complicated issue, but why would you leave on the table the additional power of saying to markets, “We’re going to keep doing this for a while”? And, separately, there’s been a lot of conversation about the risks associated with quantitative easing. I wonder if you could tell us, when is the last time you spoke with someone who is unemployed?
Answer: Pretty recently. I have a relative that is unemployed. But I come from a small town in South Carolina that has taken a big hit from the recession. Last time I was there, the unemployment rate was about 15 percent. I think it’s better now. The home that I was raised in had just been foreclosed upon when I was visiting there. I have great concern about the unemployed both for their own sake, but also because the loss of skills, the loss of labor force attachment is bad for our whole economy. It reduces tax revenues. It reduces productivity. So I think it’s very, very important that we act to address unemployment, and I think the Federal Reserve—I think most people would agree—the Federal Reserve has been fairly active in that regard. In terms of costs, there are a number of different costs, and I mentioned some of them in my remarks. I think one that has recently been discussed—Governor Stein brought it up in a speech—is the issue of financial stability. Clearly, financial instability, if it were allowed to be sufficiently serious, would be a threat to employment, a threat to jobs, and a threat to production. So, obviously, given the experience of the past few years, we want to be sure that we’re not unnecessarily encouraging excessive risk-taking or other problems in the financial markets. We do address that through a number of means, including monitoring the financial system, regulation, supervision, communication, and the like. But this is a potential concern that a number of my colleagues are worried about, and it’s one of the things we talked about in our discussion of the costs and risks of balance sheet policies.

Question (Donald Judd, CBS News): Donald Judd, CBS News. I was wondering if you could tell me how, if a run on the banks happens in Cyprus, how that might affect U.S. markets. And also, is it possible for the U.S. to levy a tax on regular deposits here, or why not?
Answer: Well, as someone mentioned, Cyprus is a tiny economy, and I don’t think that these issues, as worrisome as they are and as concerned as we would be for the Cypriote people, I don’t think that they have direct implications for the U.S. economy. The only way that they would create a problem would be if the runs became contagious in some sense, if depositors in other countries lost confidence. But at this point, I’m not aware of any evidence that that is, in fact, the case. The argument the Europeans are making is that Cyprus is a very unique situation, very different situation. And, indeed, it is quite unusual to have a banking sector as large as they have relative to their economy. In terms of the United States, you know, the FDIC was founded, I think, in 1934, and insured deposits, and they’re very proud of the fact that no one’s ever lost a dime in insured deposits. And, during the crisis, the response of the government was, in fact, to increase the level of, you know, depositor account sizes that were insured. So I consider that to be extremely unlikely in the United States.