Federal Reserve press conference, 2013-12-18 — Chair Ben Bernanke

Question (Victoria McGrane, Dow Jones Newswires): Victoria McGrane, Dow Jones. In an earlier response, you sort of laid out the argument against—or sort of explained why the Committee didn’t lower the 6.5 percent unemployment threshold. Is that conversation over? Have you all put off the table changing those thresholds? Has there been any other further discussion on perhaps adding a lower bound to the inflation target as well? And then, specifically on inflation, what tools or actions could the Committee take if inflation continues to run below your target or even falls further?
Answer: Well, I think we want to make an assessment now. I wouldn’t expect any changes in the very near term. We want to see how much accommodation we have and whether it’s sufficient, whether the economy is continuing to grow, and inflation is moving back toward target, as we anticipate. But there are things we can do. We can strengthen the guidance in various ways. And while the view of the Committee was that the best way forward today was in this more qualitative approach, which incorporates elements both of the unemployment threshold and the inflation floor, that further strengthening would be possible, and it’s something that has certainly not been ruled out. And, of course, asset purchases are still there to be used. We do have tools to manage a large balance sheet. We’ve made a lot of progress on that. So while, again, while we think that we can provide a high level of accommodation with a somewhat slower pace—but still very high pace—of asset purchases and our interest rate policy, we do have other things we can do if we need to ramp up again. That being said, we’re hopeful that the economy will continue to make progress, and that we’ll begin to see the whites of the eyes of the end of the recovery and the beginning of the more normal period of economic growth.

Question (Murrey Jacobson, PBS NewsHour): Hi. Murrey Jacobson with the NewsHour. On the question of longer-term unemployment and the drop in labor force participation, how much do you see that as the result of structural changes going on in the economy at this point? And to what extent do you think government can help alleviate that in this environment?
Answer: I think a lot of the declines in the participation rate are, in fact, demographic or structural, reflecting sociological trends. Many of the changes that we’re seeing now, we were also seeing to some degree even before the crisis, and we have a number of staffers here at the Fed who have studied participation rates and the like. So I think a lot of the unemployment decline that we’ve seen, contrary to sometimes what you hear, I think a lot of it really does come from jobs as opposed to declining participation. That being said, there certainly is a portion of the decline in participation, which is related to people dropping out of the labor force because they are discouraged, because their skills have become obsolete, because they’ve lost attachment to the labor force, and so on. The Fed can address that, to some extent, if—you know, if we’re able to get the economy closer to full employment, then some people who are discouraged or who have been unemployed for a long time might find that they have opportunities to rejoin the labor market. But I think, fundamentally, that training our workforce to fit the needs of 21st-century industry in the world that we have today is the job of both the private educational sector and the government educational sector. We have many strengths in our educational sector, including outstanding universities, but we have a lot of weaknesses, as you know. There are many, many factors that affect participation—employment, wages, and so on, but the one I think that we can most directly affect is the skill level of our workforce. And that doesn’t mean everybody has to go to get a Ph.D. People have different needs, different interests. But that, I think, is one of the biggest challenges that our society faces, and if we don’t address it, then we’re going to see a larger and larger number of people who are either unemployed, underemployed, or working at very low wages, which obviously is not something we want to see. Thank you.