In a statement, the Fed said there has been “a return to moderate economic growth” in recent months. Consumers seem to have shrugged off tax increases, while stock markets have reached new highs. The housing market is rebounding, and the job growth has been surprisingly strong.
The Fed has been buying $85 billion worth of government and mortgage-backed securities a month to help bring down long-term interest rates. Many economists believe that has helped prop up the housing market and create jobs in deeply wounded industries, such as construction. Speaking at a news conference Wednesday, Fed Chairman Ben S. Bernanke stressed that the central bank could “calibrate” the amount of bonds it purchases to the health of the labor market.
“The point of this is to let the markets see our behavior, to let them see how we respond to changes in the outlook,” he said.
Other Fed officials have outlined specific terms under which they would consider slowing down or ending the bond-buying program. Chicago Fed President Charles Evans has suggested job growth of about 200,000 for six straight months as one key condition. This month, Fed Governor Janet Yellen said she is eyeing the number of employees voluntarily quitting their jobs and the rate at which companies are hiring.
Bernanke did not provide details of what he is looking for. But he said that tying the purchases to a single criterion — such as the unemployment rate or payroll growth — would require the Fed to adopt an “all or nothing” approach to stimulus.
“We think it makes more sense to have our policy variable,” he said, allowing the central bank to “respond in a more continuous or sensitive way.”
However, the Fed has specific goals for hikingshort-term interest rates, which are currently near zero. It has vowed not to make a move at least until the unemployment rate hits 6.5 percent or inflation rises above 2.5 percent.
Bernanke emphasized that there will be a “considerable interval” between when the Fed stops buying bonds and when it begins raising short-term interest rates. Thirteen of the 19 top officials at the Fed believe the first rate hike will not occur until 2015. Four think it will happen next year.
Though Fed officials edged their forecasts for economic growth down slightly on Wednesday, the outlook for jobs inched up. Government data released Tuesday showed the number of new homes under construction rose to an annual rate of 917,000 — a pace that is spurring demand for more workers. A report by TD Economics estimated that the industry would add 400,000 jobs this year.
“The Fed is winning,” economists at High Frequency Economics wrote in a recent research note. The numbers “are suggesting significant upward momentum, raising the potential for growth to effectively ‘feed on itself.’ ”
But such hope has petered out before. Those results must be sustained beyond a few months for the central bank to consider dialing back its support of the economy. In a rare personal reference, Bernanke noted that he has a relative who is out of work and that he understands the plight of the 12 million unemployed Americans.
“I have great concern about the unemployed, both for their own sake, but also because the loss of skills, the loss of labor force attachment is bad for our whole economy,” he said.
Bernanke also addressed his own future. His term as chairman ends in January 2014, and there has been much speculation about whether he will stick around for another one to help the central bank unwind the unprecedented steps it took to respond to the worst global financial crisis since the Great Depression.
On Wednesday, Bernanke said only that he has spoken with President Obama “a bit.” But he pointed out that the central bank is staffed by top-notch economists and policymakers who have been on the front lines of the crisis.
“I don’t think that I’m the only person in the world who can manage the exit,” he said.
Only one member of the Fed’s policymaking committee objected to its vote on Wednesday. Kansas City Fed President Esther George said she worried that excessive stimulus could create broad financial instability and raise inflation down the road.
Jim Tankersley contributed to this report.