Federal Reserve press conference, 2012-09-13 — Chair Ben Bernanke

Question (Darren Gersh, Nightly Business Report): Hi, Mr. Chairman, it’s Darren Gersh, Nightly Business Report. Your forecast doesn’t get back to full employment for four years, so could these new bond purchases go on for years? And can you give us a better idea of when you’ll—if you have specifics in mind on when you’ll know it’s time to stop?
Answer: Yes. We’ll be looking for signs that the economy is strong enough to promote improvement and sustained improvement in labor market conditions and declines in unemployment. I mean, that’s—we’re not going to be able to sustain purchases until we’re all the way back to full employment, that’s not the objective. The idea is to quicken the recovery, to help the economy begin to grow quickly enough to generate new jobs and reduce the unemployment rate. So that’s the criterion we’re looking at.

Question (Kristina Peterson, Dow Jones Newswires): Kristina Peterson of Dow Jones. The statement indicated that the highly accommodative stance would be maintained until after the recovery starts to strengthen, but there aren’t any specific economic conditions that are described. Could you describe what those would be? Or is the Fed—the Fed seems reluctant to have done that so far.
Answer: Well, we’ve been talking about our communications at the FOMC and trying to think about how best to communicate to the public, you know, what our policy reaction function, so to speak, is. And we haven’t, to this point, come to a set of numbers, a set of data that we can put out. But what we’re trying to convey here is that we’re not going to be premature in removing policy accommodation. Even after the economy starts to recover more quickly, even after the unemployment rate begins to move down more decisively, we’re not going to rush to begin to tighten policy. We’re going to give it some time to make sure the recovery is well established.

Question (Steve Liesman, CNBC): Mr. Chairman, I want to talk about that same line in the statement. Does that mean that your tolerance for inflation will be higher in coming years, in the middle of the recovery? And, if not, what good is that language there if it doesn’t tell people that the reaction function relative to inflation has changed? Secondly, stock prices are up today, so are oil prices and gold. Why aren’t those part of the same reaction to the Fed’s acts today?
Answer: Well, our policy approach doesn’t involve intentionally trying to raise inflation. That’s not the objective. The idea is to make sure we provide enough support so the economy will grow fast enough to bring unemployment down over time. I mean, as we look back at the last six months or so, we’ve seen unemployment at basically the same place it was in January. We’ve seen not enough jobs growth to bring down the unemployment rate, and what we need to see is more progress. And that’s what we will be looking at. In terms of the mid-2015 date, we think by that point that the economy will be recovering, we’ll be providing the support it needs. But if you look at our projections, you’ll see it doesn’t involve any inflation, that we still believe that inflation is going to be close to our 2 percent target.

Question (Zachary Goldfarb, Washington Post): Thank you, Mr. Chairman. Earlier this year, on two occasions, the Fed took policy actions, which you defended as extremely important for the economy, but, as you mentioned, there hasn’t been any improvement in the labor markets since the beginning of the year. Why should people believe this will make a difference? And the projections seem to suggest it’s approximately a 0.4 reduction in unemployment. Is that the limit of what Fed policies can do going forward?
Answer: Well, our assessment—I talked about this at my remarks at Jackson Hole—our assessment, and that of the research literature, is that the policies that we’ve undertaken have had real benefits for the economy—that they have provided some support, that they have eased financial conditions and help reduce unemployment. All that being said, monetary policy, as I’ve said many times, is not a panacea. It’s not by itself able to solve these problems. We’re looking for policymakers in other areas to do their part. We’ll do our part, and we’ll try to make sure that unemployment moves in the right direction, but we can’t solve this problem by ourselves.

Question (Zachary Goldfarb, Washington Post): And do you think that 0.4 percent difference in the projections is about what’s possible?
Answer: Well, what happens is going to depend on where the economy goes—how much ultimate accommodation we give the economy. The 0.4 percent you’re referring to is the change in the forecast between the last projection and this one. But remember, people make projections assuming that policy is appropriate. So some of them may have assumed these policies in their last projections, and not all are assuming these policies in this projection. So that’s probably a little bit of an understatement of what we think we can get. But in any case, again, I want to be clear that while I think we can make a meaningful and significant contribution to this problem—to reducing this problem, we can’t solve it. We don’t have tools that are strong enough to solve the unemployment problem.

Question (Pedro Da Costa, Reuters): Pedro da Costa from Reuters. My question is—I want to go back to the transmission mechanism because, speaking to people on the sidelines of the Jackson Hole conference, that seemed to be the concern about the remarks that you made is that they could clearly see the effect on rates and they could see the effect on the stock market, but they couldn’t see how that had helped the economy. So I think there’s a fear that, over time, this has been a policy that’s helping Wall Street but not doing that much for Main Street. So could you describe, in some detail, how does it really different—differ from trickle-down economics, where you just pump money into the banks and hope that they lend?
Answer: Well we are—this is a Main Street policy, because what we’re about here is trying to get jobs going. We are trying to create more employment, we are trying to meet our maximum employment mandate, so that’s the objective. Our tools involve—I mean, the tools we have involve affecting financial asset prices, and that’s—those are the tools of monetary policy. There are a number of different channels—mortgage rates, I mentioned other interest rates, corporate bond rates, but also the prices of various assets, like, for example, the prices of homes. To the extent that home prices begin to rise, consumers will feel wealthier, they’ll feel more disposed to spend. If house prices are rising, people may be more willing to buy homes because they think that they’ll, you know, make a better return on that purchase. So house prices is one vehicle. Stock prices—many people own stocks directly or indirectly. The issue here is whether or not improving asset prices generally will make people more willing to spend. One of the main concerns that firms have is there is not enough demand, there’s not enough people coming and demanding their products. And if people feel that their financial situation is better because their 401(k) looks better or for whatever reason, their house is worth more, they are more willing to go out and spend, and that’s going to provide the demand that firms need in order to be willing to hire and to invest.

Question (Jon Hilsenrath, Wall Street Journal): Jon Hilsenrath from the Wall Street Journal. Mr. Chairman, the statement says—we’ve come back to this a couple of times— “If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of agency mortgage- backed securities, … additional asset purchases, and employ … other policy tools.” Can you define and describe more specifically what “improve substantially” means? And what do you— what is the Committee referring to when it says “additional asset purchases” and “other … tools.”
Answer: Well, again, we’re looking for ongoing sustained improvement in the labor market. There’s not a specific number we have in mind. But what we’ve seen in the last six months isn’t it. We’re looking for something that involves unemployment coming down in a sustained way, not necessarily a rapid way, because I don’t know if our tools are that strong, but we’d like to see an economy which is strong enough that it will support improving labor market conditions and unemployment that’s declining gradually over time. That’s essentially what we’re looking for. In terms of the tools that we have, we have the mortgage-backed security purchases, which we can continue or expand or change in any— you know, in various ways. We could also purchase, of course, Treasuries; we’ve retained that capacity. And in terms of other policies, again, there are a number of possibilities, but the one I mentioned to Zach in particular is our communication policies, finding ways to better explain our rate policies that will engender more-accommodative financial conditions.

Question (Binyamin Appelbaum, New York Times): Mr. Chairman, it seems pretty clear that the Fed’s announcement today has created a good deal of confusion about how long you’ll keep buying assets, judging from the questions in this room and outside of it. Why did you choose not to adopt a specific target? Did the Committee consider specific targets—there have been a number of proposals—and why did you choose not to do that?
Answer: Well, we—the problem is that, for this purpose, that what we’re looking for is a general improvement in labor market conditions. We want to see the unemployment rate come down, but that’s not the only indicator, obviously, of labor market conditions. The unemployment rate came down last month because participation fell. That’s not necessarily a sign of improvement. So we want to see more jobs. We want to see lower unemployment. We want to see a stronger economy that can cause the improvement to be sustained; it’s not just a one-month or two-month phenomenon. We’re not going to be looking for little wiggles in the numbers that are going to cause us to radically shift our policy. So, we, at least at this point, have decided to define it qualitatively. I hope I am giving you at least a little color in terms of what we’ll be looking for. We’ll be looking for, again, an economy which is quickening, that gives signs of continued improvement, that allows labor markets to be stronger, and that will be the type of qualitative criteria that we look at. We don’t—again, we don’t have a single number that captures that, but we anticipate that we’ll have to do more, and we’ll do enough to make sure that the economy gets on the right track.

Question (Peter Barnes, Fox Business): Sir, just to follow up on—Peter Barnes with Fox Business—to follow up on Darren’s questions, a question about getting back to full employment. It looks like there’s a lot more work to do here. And so I wanted to ask you about your plans as Fed Chairman— your term expires in January of 2014. Governor Romney’s comments notwithstanding, what are your plans? Do you plan to leave at that time? Would you consider an appointment to a third term at the Fed at all? And then, if I may, on election year politics, is there any—do you have any concern or was there any discussion within the Committee about whether or not your actions today might be perceived as helping President Obama, helping the economy, and thus helping President Obama get reelected and hurting Governor Romney’s chances in the presidential contest? Thank you.
Answer: Well, on the former, I’m—I have a lot to do. I am very focused on my work, and I don’t have any decision or any information to give you on my personal plans. On the politics, we have tried very, very hard—and I think we’ve been successful—at the Federal Reserve to be nonpartisan and apolitical. We make our decisions based entirely on the state of the economy and the needs of the economy for policy accommodation. So we just don’t take those factors into account, and we think that’s the best way to maintain our independence and maintain the trust of the public.

Question (Greg Robb, MarketWatch): Thank you, Mr. Chairman. Yesterday former Fed Governor Larry Meyer at a conference in Washington said he’d never seen such a divided Fed. And we see it, we who cover the Fed see it in the speeches, in the run-up to today’s decision. Some people said that it was dubious whether QE3 would work. Could you comment on former Governor Meyer’s suggestions, and then—and sometimes don’t you think, don’t you wish that some of the Fed officials who don’t support QE would keep their—keep their fears to themselves? Thank you.
Answer: Well, as you know, we are living in a very complex time and dealing with a complex economic situation and a variety of novel and different issues, including new policies that haven’t been used in the same way in the past, and so naturally we have a range of views, a range of opinions. I think on the whole that’s probably a good thing. It’s good to hear different points of view, and it’s good to make sure that the points of view that are outside the Fed are reflected in the discussion around the table inside the Fed. So we have a very collaborative and collegial discussion process, that, again—that spans a range of views. We were, however, able to come to a pretty good consensus—as you know, the vote on this was 11 to 1—and that’s a sign that the broad center of the Committee does support these actions and will continue to support them going forward.

Question (Don Lee, Los Angeles Times): Don Lee with the L.A. Times. With mortgage rates already at historical lows, how much further do you think the actions, your actions, will drive down the rates, and related to that, I’m assuming that you expect the purchases of mortgage-backed securities to have a meaningful effect on refinancings and housing activity. What would that look like? What would that meaningful effect mean?
Answer: Well, again, as I mentioned before, it’s true that our mortgage-backed securities purchases ought to drive down mortgage rates, and put downward pressure on mortgage rates, and create more demand for homes and more refinancing. But it will depend, again, ultimately on several things. One will be on the amount that we do, the amount of purchases that we do, and that in turn is going to be a function of how the economy evolves. If the economy is weaker, we’ll do more, and in those cases, probably rates would be pretty low at any case because the economy is looking weak. If the economy is stronger, strong enough to create improving labor market conditions, we won’t have to do as much. And so, the amount that we do depends on how the economy evolves. So, since I don’t know exactly how much we’ll end up doing, it’s a little bit hard to give you an exact estimate. So I think that’s, you know, in terms of how many homes and those kinds of questions, again, I think that the markets are looking—are looking a little better. I think that house prices are beginning to rise in some markets, which will encourage people to look at homes, will encourage lenders to make more mortgage loans. So I’m hopeful that we’ll see continued progress in the housing market; that— that has been one of the missing pistons in the engine here. Housing is usually a big part of the recovery process. We haven’t had that nearly to the usual extent, and to the extent that we can support housing, I think that would be a very useful outcome.

Question (Scott Spoerry, CNN): Scott Spoerry with CNN and CNNMoney. Earlier this year at one of your news conferences in this room, you said that you were already hearing anecdotal information from some of your colleagues at the regional Fed Banks about firms, companies making decisions on hiring next year because they were afraid of the fiscal cliff or whatever the federal government was going to do in terms of—in terms of cutbacks. It’s been a few months since you made that statement, and I’m sure your staff are working hard on it, but how much of a headwind to the economy is the fear of the federal government just sort of cutting way back, falling across the fiscal cliff or even—even if they take a few steps back from the cliff, it’s still there. How much is that fear contributing to lack of—lack of growth or adequate GDP growth in the economy?
Answer: Well I—you know, it’s pretty hard to give you a number, but I can certainly confirm that as the Reserve Bank presidents and Governors made their reports today and yesterday around the table, there was considerable discussion of uncertainty, including policy uncertainty, fiscal policy uncertainty, and the implications of that for hiring and investment decisions. A lot of—a lot of firms are waiting to see whether that problem will be resolved. And if so, how? And I think it is a concern. It is something that is affecting behavior now. But again, I don’t know—I don’t have a number, I don’t know how big that effect is, but, certainly, the sooner that can be resolved, the sooner it can be clarified, it will be beneficial not just because we avoid the cliff itself, but because we clarify for firms, for employers and investors, how that’s going to be resolved. So, I think it’s an issue that is of some consequence, yes.

Question (Catherine Hollander, National Journal): Hi, Mr. Chairman. Catherine Hollander, National Journal. How much was the fiscal cliff a decision, or a factor in your decision, to do an open- ended QE instead of a fixed sum? Or fiscal uncertainty more generally?
Answer: Well, we take the economy as we find it. There are a lot of headwinds right now that are affecting the economy. There’s fiscal headwinds. There’s international factors, including the situation in Europe. There’s factors arising from still- impaired credit markets, and so on. So we looked at that—looked at the economy from the perspective of, you know, how quickly it’s been growing over the last six months to a year. And, as I talked about in a speech in March, in order for employment gains to be sustained, for unemployment to fall, the economy needs to grow at or above trend levels. And lately it’s not really been at trend. So we’ve been responding to that problem and trying to take steps that will assure somewhat stronger growth and, we hope, will help bring unemployment down over time. Now, again, the fiscal cliff, the uncertainty about the fiscal cliff, is one of the factors, one of the headwinds, but I’m sure there are many others, and we don’t try to differentiate among them in any sense. If the fiscal cliff does occur, I suspect it won’t, and I hope it won’t, but if it does, and we get the kind of impact the Congressional Budget Office is talking about, as I’ve said, I don’t think the Federal Reserve has the tools to offset that, and we would have to rethink at that point. But we’ve taken the steps we’ve taken now because we’d like to see the economy gather more momentum, and the more momentum it has, the better placed we are to deal with any shocks that might come down the road.

Question (Marcy Gordon, Associated Press): Marcy Gordon with the Associated Press. One of the aspects we’ve seen in recent reports on unemployment is the shrinking labor force. Is that something that’s of specific concern to you, and what does it tell us about the labor market and the economy?
Answer: Well, you are absolutely right. And as I mentioned earlier, the unemployment decline last month was more than 100 percent accounted for by declines in participation. Some decline in participation is anticipated, is as expected. We’re an aging society. We have more people retiring. Female participation has flattened out; it hasn’t continued to climb as it did for several decades. We’re seeing less participation among younger people, fewer college students taking part-time jobs and the like. So part of this decline in participation was something that we anticipated quite a long time ago, but part of it is cyclical. Part of it reflects the fact that some people—because they have essentially given up or at least are very discouraged—have decided to leave the labor force. And the anticipation is that if the economy really were to strengthen, and labor markets were to strengthen, at least some of those people would come back into the labor force. They might even temporarily raise the unemployment rate because they’re now looking again. So the participation rate over and above—the decline in participation rate over and above the downward trend is just one of the other indicators of a generally weak labor market. And it’s why I said earlier that we do want to look at a range of indicators, not just the unemployment rate, although that’s a very important indicator, not just payrolls, although that also is a leading indicator, but participation, hours, part- time work, and a variety of other measures which suggest that our labor market is still in quite weak condition. Thank you.