Federal Reserve press conference, 2012-06-20 — Chair Ben Bernanke

Question (Mark Felsenthal, Reuters): Mark Felsenthal with Reuters. Mr. Chairman, many analysts have characterized today’s step as somewhat modest. Your own outlook has a much lower GDP projection. The unemployment rate in your outlook is—shows possibly no improvement at all in the unemployment rate through the end of this year. The program itself is smaller and of shorter duration than the original Operation Twist. Given this weaker outlook, why such a modest program? And when you say you are prepared to take further action, which is a stronger characterization than in your last meeting, does that mean you are prepared to do a full-on new asset purchase program?
Answer: Well, there’s been a great deal of economic news since our last meeting. The incoming data were somewhat disappointing—but not entirely clear how to read them. We had issues with weather and seasonal adjustment and other factors. Meanwhile, Europe has had additional problems. We’ve seen some of those effects in financial markets. So, I think, there is some case to be made for making some additional judgments about where the economy is going. That being said, the step we took, the extension of the maturity extension program, I think, is a substantive step, and it will provide some additional support. And yes, additional asset purchases would be among the things that we would certainly consider if we need to take additional measures to strengthen the economy.

Question (Steven Beckner, MNI): Steve Beckner, Market News International. Mr. Chairman, when we—when you speak of the fiscal cliff, typically you don’t differentiate between the automatic tax-hike aspect of that and the automatic spending cuts, which leaves the impression that you are giving equal weight to both sides. Some would contend that the automatic tax hikes would be more onerous. How do you parse the relative importance of those two aspects? And if I may be permitted, I am also curious to know how the Fed is going to conduct open market operations, if, as the New York Fed statement says, by the end of this year, they will essentially have no short-term securities to use.
Answer: Well, on the fiscal cliff, I mean, just the way that the programs are set up, the dollar amount associated with the tax expirations—tax-cut expirations, including the payroll tax cut and so on, is larger than the spending cuts, as I understand it. But I’m not making any judgment about individual programs. The point here is that putting all these things together, you have a very substantial withdrawal of income from the economy that will affect spending and will affect the ability of the economy to recover in the short run. Now, again, in making decisions about, you know, how to modify those automatic changes, Congress obviously has to look at the long run, you know—what is the most efficient tax structure, what’s the best way to spend our limited resources? Those are tough decisions that Congress has to make, but in terms of the fiscal cliff, in terms of what’s going to happen in January, the—it’s really the total of both spending cuts and tax increases which has the impact, which not only we, but others like the Congressional Budget Office, have identified as being a concern. We’ll still be able to do open market operations with our securities, even if the amount of short-term debt is very low. And indeed, of course, over time, the—as securities come close to maturation, we will have other securities that are of short duration.