Here’s everything you need to know about Bernanke’s press conference today

June 19, 2013

The Federal Reserve's policy committee met Tuesday and Wednesday, and at 2 p.m., the Federal Open Market Committee released both a statement announcing its policy stance and the its economic projections, revealing how its members expect growth, employment and inflation to evolve in the years ahead. Chairman Ben Bernanke then began a scheduled news conference, first giving a prepared statement describing the Fed's goals and policy stance, then taking questions from reporters.  We liveblogged it here.

[liveblog]

That’s a wrap

And that'll do it for today.

Clearly the big headline from this news conference was Federal Reserve Chairman Ben Bernanke's announcement that the Fed expects to continue its bond purchase program until the unemployment rate falls to 7 percent from its current 7.6 percent, which Fed officials think will be in the middle of 2014. But he also emphasized a couple of corollary points: That even when the Fed stops buying additional bonds, it will not immediately start raising short-term interest rates; and that the timing of any policy change will be determined by how the economy does, not based on an arbitrary date.

Until next time, live every day like it's FOMC day.

Bernanke backs BOJ

A reporter from Nikkei, the Japanese newspaper, asked Bernanke's opinion of the recent sharp volatility in that nation's financial markets, and in particular his view of theories that it is an unintended consequence of the Fed's aggressive monetary easing. The chairman gave an interesting answer in which he endorsed the efforts of the Bank of Japan to shock the Japanese economy out of its long cycle of deflation and stagnant growth.

"I think the volatility is mostly linked to the Bank of Japan's efforts," Bernanke said. "That would seem logical, because in earlier episodes when the Federal Reserve was doing asset purchases but the Bank of Japan wasn't doing anything, we didn't see this volatility."

He seemed supportive of the BOJ's efforts. The BOJ "is fighting a very difficult, entrenched deflation," Bernanke said. "The public's expectations are for continued deflation; it takes aggressive policy to break those expectations, to get inflation up to the 2 percent target the Bank of Japan has set."

He added: "It's not all that surprising that there's volatility. I'm supportive of my colleague Mr. Kuroda [the governor of the Bank of Japan, Haruhiko Kuroda] and what Japan is doing even as it has effects on our economy as well."

Markets’ wild ride in one chart

It's been quite a tumultuous afternoon for the stock market since the FOMC statement at 2 p.m. This is the Standard & Poor's 500 since opening this morning. You can easily see the point where the Fed made its announcement.


Source: Bloomberg

Bernanke on Jackson Hole

Peter Barnes of Fox Business asked how we should take the chairman's decision not to attend the Federal Reserve Bank of Kansas City's annual economic symposium in Jackson Hole, Wyo., in August. The sitting Fed chair has attended for the last 25 consecutive years, and the event is one of the highlights on the calendars of global central bankers.


Bernanke and Timothy Geithner at Jackson Hole. (Andrew Harrer/Bloomberg News)

Bernanke's comments played down the importance of the conference, noting that the event is held by one of the 12 reserve banks, not organized by the Fed system as a whole. And he said that he has attended the event more consistently than he has any of the other reserve banks' conferences.

Markets take a dive


(Brendan McDermid/Reuters)

Stock markets sold off as Bernanke's press conference began, and bond yields rose, suggesting markets viewed the chairman's comments as suggesting a quicker winddown of Fed bond purchases.

The S&P 500 was down 0.6 percent at 3:05 p.m., after being little changed when the Fed first released its statement. The Dow Jones industrial average was down even more, off 0.9 percent, or 140 points, at 3:05 p.m.

The 10-year Treasury bond yield was up 0.13 percentage points for the day, to 2.303 percent at 3:05 p.m.

Bernanke on communications

Peter Cook of Bloomberg Television asked if the Fed's communications have risked making markets more volatile.

Said Bernanke, "I guess I agree with you that our communications is going to be very important." He then used it as an opportunity to put the central banks' communications about its policies in context.

"Our policies are tied to how the outlook evolves. That should provide some comfort to markets, because they should understand I hope that we will be providing whatever support is necessary. If the economy improves the way ewe expect, we will provide support."

"Your point is well taken that we are in a position where the simple adjustment by 25 basis points of the federal funds rate seems like a long ago experience, and we are in a much more complex situation. We are determined to be as clear as we can, and we hope you and your listeners and markets will be able to follow what we're saying."

Bernanke: No comment on my plans

My colleague Ylan Mui asked the question on everyone's mind: What's in the chairman's future? His term is up Jan. 31, and President Obama hinted in an interview Monday that Bernanke has stayed in place longer than he had planned, seeming to imply that Bernanke's chairmanship will end with his current term.

The Fed chairman didn't take the bait. "We just spent two days working on monetary policy issues, and I want to keep the discussion focused on policy.  I don't have anything for you on my personal plans," he said.

Better luck next meeting.

Why are interest rates rising?


Alister Bull of Reuters asked Bernanke why he thinks interest rates, including mortgage rates, have been rising recently, and what risks it may create for the housing market.

"As far as the housing market is concerned, we're going to watch that," Bernanke said. "But people are more optimistic about housing, and they expect house prices to continue to rise."

"That compensates to some extent for a slightly higher mortgage rate." he added.

Moreover, he said that some rise in mortgage rates could be healthy.

"Our forecasts do factor that in," said Bernanke. "And if interest rates go up for the right reasons, that is both optimism about the economy and an accurate assessment of monetary policy, that's a good thing, not a bad thing."

Bernanke’s driving metaphor

The chairman used a nice metaphor to characterize the future path of the Fed's bond purchases. Think of the economy as a car. The Fed has been pushing on the accelerator, trying to get it to go faster. To taper off QE policies would be the equivalent of letting up on the gas a little bit.

"We will ease the pressure on the accelerator gradually," the chairman said. "Any need to apply the brakes" that is, to tighten monetary policy by raising interest rates, "is still far in the future."

Huh. It's a little like the metaphor used by our imaginary drunk Ben Bernanke.

QE until 7% unemployment

Well, that's new.

There hasn't been much news in the chairman's statement until just now. Bernanke said that the FOMC expects to continue buying bonds -- holding to its quantitative easing policies -- until the unemployment rate falls to 7 percent, which it expects will happen next year. The U.S. unemployment rate is currently 7.6 percent.

That adds another layer to the thresholds and triggers debate. The Fed has since December made clear it expects to keep short-term interest rates in place until the unemployment rate hits 6.5 percent. And now Bernanke has told us that it will continue QE until unemployment hits 7 percent.

Thresholds, not triggers

In the opening statement of his news conference, Bernanke noted something about the Fed's communications policies that he has said before, but apparently bears repeating.


Ben Bernanke at the press conference. AP Photo/Susan Walsh

The FOMC has said it expects to keep low interest rates in place until either unemployment falls below 6.5 percent or inflation is set to exceed 2.5 percent. But those are not automatic triggers, Bernanke stressed. If the unemployment rate falls below 6.5 percent, for example, but inflation is still not a major risk, the Fed could keep low rates in place even longer.

Repeat after me: It's a threshold, not a trigger.

Tim Duy: Door ‘wide open’ for taper

Tim Duy is among the first out of the gate with a full analysis of the statement, and he argues that it leaves the door "wide open" for slowing the pace of bond purchases in the months ahead.

Writes Duy, at Economist's View:

It sent a clear signal that the door to scaling back asset purchases was now wide open.  Of course, we still await the press conference, where Federal Reserve Chairman Ben Bernanke can place his own spin on the statement, but I suspect we will see him take the opportunity to set the stage for a policy change as early as September.

 

Two key sentences stand out.  First, on inflation:

"Partly reflecting transitory influences, inflation has been running below the Committee's longer-run objective, but longer-term inflation expectations have remained stable."

This sounds like the FOMC continues to downplay the recent slide in inflation and instead focus on the longer-term forecast and stable inflation expectations.  Thus, inflation is as of yet not an impediment to scaling back asset purchases.

Read the full post here.

3 lessons from the projections

You can see the full projections of FOMC members below. A couple of themes emerge:

1) Inflation is going to be quite a bit lower this year than anyone thought a few months ago. Fed officials now expect only 0.8 percent to 1.2 percent overall inflation this year, or 1.2 percent to 1.3 percent excluding food and energy. By any measure, those are undershooting the Fed's long-term 2 percent inflation target, which explains why St. Louis Fed President James Bullard has become a dovish dissenter.

2) Progress on unemployment, not so much on growth. The Fed officials now expect the unemployment rate to fall to 7.2 percent to 7.3 percent by the end of this year, a bit better than they expected in March. But their forecast for GDP growth, of 2.3 percent to 2.6 percent, is actually a small downgrade from the 2.3 percent to 2.8 percent forecast of March.

3) Better growth next year. The Fed leaders may have slightly downgraded 2013 GDP growth estimates, but bumped them up a bit for 2014, to 3 percent to 3.5 percent.

Bond yields rise on FOMC


A trader at the NYSE. (Justin Lane/EPA)

The Treasury bond market didn't love the FOMC's statement and projections, undergoing a mild sell-off and driving longer-term interest rates up.

The 10-year U.S. Treasury bond yielded 2.263 percent at 2:15 p.m., up about 0.05 percent from before the announcement. That suggests bond investors viewed the statement as implying the Fed will wind down its $85 billion in monthly bond purchases sooner rather than later, removing a support strut for the Treasury bond market.

Two Fed dissenters

At every meeting this year, Esther George, the president of the Kansas City Fed, has dissented from the central bank's policies, preferring tighter money out of fear of asset bubbles.

At this meeting, she was joined by a colleague, from the same state, who dissented for opposite reasons.

James Bullard, president of the St. Louis Fed, dissented from the decision in a dovish direction, that is preferring to signal more inclination toward action to support growth. He "believed that the Committee should signal more strongly its willingness to defend its inflation goal in light of recent low inflation readings," according to the Fed's statement.


Esther George and James Bullard. Bloomberg News

That is consistent with Bullard's longstanding view that the Fed should be particularly aggressive in using monetary policy to maintain inflation near its 2 percent target. That has put him on both the hawkish and dovish sides of the central bank at different times. One way to think of him is as a "deflation hawk." He wants to move aggressively to prevent falling prices, but is more skeptical of the ability of monetary policy to help the job market.

The economic projections, in one table

The Fed projects 2.3 to 2.6 percent real GDP growth this year, in line with longer-term growth rates. That's slightly down from March's 2013 projection, which had 2.3 to 2.8 percent growth. Inflation is projected to stay below 2 percent for the next few years:

READ: Full FOMC statement

Here is the full statement released by the Fed moments ago:

Information received since the Federal Open Market Committee met in May suggests that economic activity has been expanding at a moderate pace. Labor market conditions have shown further improvement in recent months, on balance, but the unemployment rate remains elevated. Household spending and business fixed investment advanced, and the housing sector has strengthened further, but fiscal policy is restraining economic growth. Partly reflecting transitory influences, inflation has been running below the Committee's longer-run objective, but longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic growth will proceed at a moderate pace and the unemployment rate will gradually decline toward levels the Committee judges consistent with its dual mandate. The Committee sees the downside risks to the outlook for the economy and the labor market as having diminished since the fall. The Committee also anticipates that inflation over the medium term likely will run at or below its 2 percent objective.

To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.

The Committee will closely monitor incoming information on economic and financial developments in coming months. The Committee will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. The Committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes. In determining the size, pace, and composition of its asset purchases, the Committee will continue to take appropriate account of the likely efficacy and costs of such purchases as well as the extent of progress toward its economic objectives.

To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee's 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored. In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Jerome H. Powell; Sarah Bloom Raskin; Eric S. Rosengren; Jeremy C. Stein; Daniel K. Tarullo; and Janet L. Yellen. Voting against the action was James Bullard, who believed that the Committee should signal more strongly its willingness to defend its inflation goal in light of recent low inflation readings, and Esther L. George, who was concerned that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations.

No QE taper here

The FOMC has elected to maintain its $85 billion per month in bond purchases for now, giving no signal that it will taper them off in the near future. That continuation of the Fed's quantitative easing policies was generally expected.

In its statement, the Fed policymakers stuck with their recent language on the economy:

Information received since the Federal Open Market Committee met in May suggests that economic activity has been expanding at a moderate pace. Labor market conditions have shown further improvement in recent months, on balance, but the unemployment rate remains elevated. Household spending and business fixed investment advanced, and the housing sector has strengthened further, but fiscal policy is restraining economic growth. Partly reflecting transitory influences, inflation has been running below the Committee's longer-run objective, but longer-term inflation expectations have remained stable.

 

Markets down before FOMC

Keep this marker in mind: In the minutes before the FOMC statement and Fed projections, the stock market is down slightly. The Standard & Poor's 500 index is off 0.15 percent at 1:55 p.m.

The bond market was down slightly, as 10 year U.S. Treasuries yielded 2.205 percent, slightly more than Tuesday.

The dollar was down slightly against other major currencies, with the dollar index off 0.1 percent.

What people are saying on Twitter

Here is some of the latest commentary, in the minutes before the FOMC statement is released, on Twitter.

 

What to expect from the FOMC today

There's been more hype and attention surrounding this meeting of the Federal Open Market Committee than any in recent memory. Ironically, it comes as they aren't expected to make any substantial policy change. But here are some pieces previewing the meeting--or aspects of it--from the Post and other news outlets.

Here's our own Ylan Mui on the communications difficulties Bernanke & Co. are grappling with.

Here's a look at what Bernanke might say if he were being blunt (or was inebriated), from yours truly.

This is Sam Ro at Business Insider with his rundown of the coming FOMC-palooza.

Here's Victoria McGrane at the Wall Street Journal with a step-by-step guide to the day.

And her colleague Jon Hilsenrath with why it's worth focusing on the projections.

Liveblogging today’s super-exciting Fed press conference

The Federal Reserve's policy committee finished a two-day meeting Wednesday, and a big afternoon is on tap. The central bank released results of its second policy meeting of 2013 Wednesday afternoon, as well as projections growth, unemployment and inflation in the years ahead. Chairman Ben S. Bernanke will take questions from the media beginning at 2:30 for his regular quarterly press conference. Come back here for live coverage updated through the afternoon.

It's Fed day! (Manuel Balce Ceneta/Associated Press)
It's Fed day! (Manuel Balce Ceneta/Associated Press)

[liveblog]

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Dylan Matthews · June 19, 2013