Federal Reserve press conference, 2012-01-25 — Chair Ben Bernanke

Question (Binyamin Appelbaum, New York Times): Thank you. I’m a little confused by these forecasts. I was hoping you could sort of help me understand what we’re looking at. It seems to say that you expect that at the end of 2014, unemployment will be at or above 7 percent, inflation will be at or below 2 percent—and yet 11 of the 17 members of your Committee think that will be a good moment to start raising interest rates again. If unemployment and inflation are in fact symmetric objectives for the Fed, how can that possibly be the case? And is there any tolerance for above-trend inflation in the service of catch-up growth?
Answer: Well, let me first observe that we have in fact, of course, been very accommodative in the last couple of years. We’ve kept interest rates close to zero, we’ve done two rounds of asset purchases, we have announced—today, in fact—an extension of the period over which we expect to see rates very low, and our maturity extension program is still ongoing, so we maintain a quite accommodative path of policy at this point. I would further say that I think it’s important to emphasize that we’re not going to mechanically take the interest rate projections that participants provide and just build policy off of that. I mean, it’s still going to be necessary for the Committee to exercise collective judgment, to consider the costs and risks of additional policy actions, to discuss the uncertainty about the forecast and other factors that come into the policy decision. Now, all that being said, if inflation is going to remain below target for an extended period, and unemployment progress is very slow, then I think your implicit question is right, there is a case for additional policy action, and we’ll—you know, we want to continue to observe the situation, but we’re certainly prepared to look for different ways to provide support to the economy if, in fact, we have this unsatisfactory situation.

Question (Peter Barnes, Fox Business): Thank you, Mr. Chairman. Peter Barnes of FOX Business. One of the goals of the Fed and the release of all these new materials, the forecast, and the policy announcement are to help to create expectations and set expectations. But are you concerned at all that this—that the materials and the forecasts and the policy announcement path today might help create negative expectations? In other words, the average American’s takeaway of your announcement to keep interest rates low—exceptionally low, through 2014 now, might signal to them that maybe the Fed thinks that the economy is in much worse shape than we all thought, and that, in turn, could affect consumer confidence, consumer spending, and the ability to create a self-sustaining economic recovery at some point. Is there a risk of this?
Answer: Well, whenever the Fed takes a policy action, there’s always some potential for a signal. I mean, that’s true not just in these current times, but anytime the Fed lowers or increases interest rates, and that’s something we have to think about. But I think, generally speaking, that those considerations are outweighed by the need to maintain accommodative financial conditions so that it’s attractive to firms to invest and hire, attractive for those who are eligible to buy homes, and so on, and I think that that ultimately is more powerful than the signal from the change in policy. In particular, the markets and the news media are very good at picking up the underlying economic data and making assessments of the state of the economy and reporting what different people think about the economy, so I wouldn’t overstate the Fed’s ability to massively change expectations through its statements, for example. So, again, I think that while we certainly take that into account, we think it’s important for us to say what we think, and we think it’s important for us to provide the right amount of stimulus to try to help our economy recover from its currently underutilized condition.