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

Question (Jon Hilsenrath, Wall Street Journal): Jon Hilsenrath from the Wall Street Journal. Mr. Chairman, I’d like to ask you to respond to a different set of criticisms. This criticism—which you hear from Capitol Hill and Wall Street and different places—is that the Fed has already pushed interest rates to an extraordinarily low level, a historically low level, and that there isn’t anything more that the Fed can do to help the recovery. That—the criticism is that the Fed at this point should stand down and let Congress or the White House attend to the economy’s ailments or let market forces attend to the economy’s ailments. What do you think of those arguments, and how would you respond to them?
Answer: Well, as I’ve said many times, monetary policy is not a panacea. Monetary policy by itself is not going to solve our economic problems. We welcome help and support from any other part of the government, from other economic policymakers. So, collaboration is—would be great. I wouldn’t accept the proposition, though, that the Fed has no more ammunition. I do think that our tools, while they are nonstandard, still can create more-accommodative financial conditions, can still provide support for the economy, can still help us return to a more normal economic situation. That being said, again, any other support that is forthcoming, any other economic policies that are undertaken that are helpful in terms of making our economy stronger are welcome. But I do think that monetary policy still does have some capacity to strengthen the economy by easing financial conditions.

Question (Kevin Hall, McClatchy): Hi, thanks. Kevin Hall with McClatchy Newspapers. If you could flesh out a little bit more detail about what—where you think the choke points are in the economy. SIFMA yesterday had their midyear outlook conference call in which they blamed a full percentage point of the slowdown on fiscal cliff and, more importantly, Europe and said, you know, much bigger pass-through than anyone anticipated. Today, the Business Roundtable said, Europe, not so much; it’s basically the economy. The CEO of Boeing said, clearly, we’re already trimming jobs, we’re already cutting back; everybody else in the aerospace, he thinks, is doing the same. What are you hearing? Are you on the phone with people your predecessor was given to calling occasionally? What is your sense of where the choke points are that are continuing to thwart hiring?
Answer: Sure. I gave a list of some of the headwinds in my opening remarks. I do think that the European situation is slowing U.S. economic growth. First of all, Europe is, if not in a recession in every country, certainly many countries are in recession, and that affects our trade with Europe and the demand for our products. More broadly, the effects of European concerns on financial markets have added to volatility, have brought down stock prices, have increased credit spreads, and generally have been a negative for economic growth. So that has been an issue. And more broadly, we’ve seen some slowing in global economic growth more generally, including in Asia, which also has reduced somewhat our ability to export. So that’s one set of concerns that’s been important. I’d mentioned two others, I think, as being primarily important. One is housing. Housing usually plays a very important role in economic recovery, both through construction itself and related industries, but also because higher house prices increase consumer wealth and promote consumer spending. Housing does seem to be doing somewhat better. There are some good signs in housing, but nevertheless, we are not getting the size of the boost, the amount of help in the recovery that we would normally get from a housing recovery. The other area is, as you indicated, is fiscal. And that happens at all different levels: federal, state, and local. Notwithstanding programs earlier on, in the last year or two and going forward we have been seeing fiscal consolidation. Particularly at the state and local level, of course, tight budgets have led to a lot of layoffs and cancellation of projects and so on. I understand that these are necessary steps from the perspective of individual states and localities. I’m not criticizing that; it’s just a fact, though, that these contractions are affecting the pace of growth in the broader economy. So I think those would be the main things I would point to, and put them all together, and you have an economy which is growing less quickly than it normally would following a recession of the magnitude that we saw.

Question (Darren Gersh, Nightly Business Report): Darren Gersh with Nightly Business Report. You clearly seem to be waiting on the labor market. Can you be a little more specific? What exactly are you looking for? Is there a rate of job growth you need to look—to see? And also, if the unemployment rate comes down, is that enough? Or are you going to also look at labor participation and the whole gestalt?
Answer: Well, I can’t give you any specific numbers because this is ultimately a Committee decision, but what the Committee is going to do is review all the labor market indicators, including unemployment, including participation, and other measures of labor market activity, and try to make a sense—try to get a sense of whether or not the labor market is improving in a sustainable way. It’s not a month-to-month proposition. You know, this year already, we’ve seen a few months of very strong job gains, and we saw two months of weaker gains. Obviously, month to month, there is going to be statistical noise—there is going to be weather, there’s going to be a lot of factors that can cause job gains to vary. So the question is, is the improvement sustainable? Is it long lasting? That’s the kind of thing that we’ll be looking at, but I really can’t be too much more specific than that.