Federal Reserve press conference, 2011-06-22 — Chair Ben Bernanke

Question (Jon Hilsenrath, Wall Street Journal): 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 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?
Answer: 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.

Question (Kevin Hall, McClatchy): 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, suggesting 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?
Answer: 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 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.

Question (Derek Kravitz, Associated Press): 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?
Answer: 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 been 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 mostly 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 appropriate; to—and where not appropriate, 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.