Federal Reserve press conference, 2013-03-20 — Chair Ben Bernanke

Question (Robin Harding, Financial Times): Robin Harding from the Financial Times. Mr. Chairman, to follow up on that last point, what—you referred to the possibility of varying purchases, the rates of purchases per month. What’s the difference in the conditions that would induce you to do that, as opposed to the substantial improvements in the labor market that would induce you to stop the program altogether? Thank you.
Answer: Well, the problem with having just a single criterion is that it’s all or nothing. We maintain full speed ahead until we hit a certain target, and then, you know, we stop. That would be, I think, very difficult for the markets to understand, to anticipate. We think it makes more sense to have our policy variable, which is the rate of flow of purchases, respond in a more continuous or sensitive way to changes in the outlook. So, as we make progress towards our ultimate objective of substantial improvement, we may adjust the rate of flow of purchases accordingly. Now, we won’t do that every meeting; we won’t do that frequently. But when we see that the condition or the situation has changed in a meaningful way, then we may well adjust the pace of purchases in order to keep the level of accommodation consistent with the outlook, and, secondly, to help provide the markets with some sense of progress—how much progress is being made so that it can make better judgments.

Question (Don Lee, Los Angeles Times): Don Lee at the L.A. Times. Would you be in favor of reducing the flow of stimulus if we had another month or two, as we did in February, of job growth and the unemployment rate dropping, but the long-term unemployed didn’t change much? And, on a related question, how much of a pickup do you expect to see in the labor force participation rate, and what will we need to see there for that to show substantial improvement?
Answer: On the first question, as I said, I mean that’s a decision for the Committee. We’re going to have to make a judgment about how significant the improvement is, how sustained it is. Long-term unemployment is one dimension of the unemployment problem. But I think that probably the best way to get the long-term unemployed back to work is to get an overall strong labor market. And I think that’s—we’d be looking at the overall key indicators like overall unemployment rate, payrolls and hiring, and some of the other things that I mentioned. The other part of your question was about— Labor force participation, yes. Labor force participation has been declining on a trend-like basis in the United States for a while. That’s the result, mostly, of demographic factors, partly the aging of the population, partly the fact that female participation is no longer increasing—it’s in fact decreasing a little bit. It’s also the case that labor force attachment within people of working age has declined for a number of different reasons. So there’s a trend underlying this. And, in addition, there are probably some people who’ve left the labor force just because they are discouraged and they can’t find work. So, as the economy strengthens, the labor market strengthens, I would expect to see some of these folks coming back into the labor force. For example, the number of people who are out of the labor force but say they would like a full-time job but are not actually counted as unemployed, that number has actually been going up, which suggests that there are more people thinking about going back into the labor force, going back to work. But I doubt that, in the near term at least, that we’ll see an increase in labor force participation because—besides the effects of the slow recovery, high unemployment, we’ve had a downward trend in the U.S., which is not due to the recession, it’s due to underlying demographic factors.