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.
Our first panel will start a little after 8:30. It will feature Marc Rotenberg, the executive director of the Electronic Privacy Information Center and one of the harshest critics of advertisers tracking users' online activities. Also on stage will be Adam Thierer, a scholar at the Mercatus Center at George Mason University and a longtime critic of government privacy regulations. Jerry Cerasale of the Direct Marketing Association, an advertisers' group, will also participate. We should expect sharp disagreements between Rotenberg on the one hand and Thierer and Cerasale on the other.
Also joining the panel will be Peter Swire, who chairs the "Do Not Track" standards process of the World Wide Web Consortium. The "Do Not Track" standard could allow consumers to signal to advertisers that they wish their online activities to remain anonymous. There are sharp disagreements about the rules that should govern the DNT standard and whether regulators should require advertisers to honor it.
Peter Cook, of Bloomberg Television, got the final question, and tried again to get Bernanke to open up about his plans and whether he would consider a third term when his current one ends in 10 months. Cook got only a smidgen more information from the chairman than a Wall Street Journal reporter did with a similar question earlier.
"I've spoken to the president a bit, but I really don't have any information for you at this juncture," Bernanke said. So any solid guidance on Bernanke's future will have to wait for another day.
An interesting question from Ben Weyl of Congressional Quarterly: Does Bernanke believe that the growth of the financial sector relative to the size of the economy since the 1980s is desirable?
He seemed to have stumped the chairman.
"I don’t think I know the answer to that question," Bernanke said. "I could argue two ways." On one hand, he said, the U.S. economy grew strongly from 1945 to 1980, with a smaller financial system "that was much simpler and didn’t have a lot of exotic derivatives. So that would be one way to argue that maybe all this extra financial activity is not justified."
But, "on the other hand, the world’s a lot more complicated and a lot more international," Bernanke said. "You have large multinational firms . .. more demand for risk sharing and so on." Maybe, he said, this more complex and interconnected world of business demands a larger and more complex financial situation.
"So I don’t rally know the answer to that question," Bernanke said. But he doesn't buy into a line from former Fed chair Paul Volcker that the only financial innovation of the last generation to do any good was the automated teller machine. Volcker's claim, Bernanke said, "might be a little exaggerated. I know some people have that view. I don't know the answer. A somewhat larger financial sector could be justified, but beyond that I can’t really say."
Binyamin Appelbaum of the New York Times asked Bernanke when he last spoke with an unemployed person. "Fairly recently," the chairman said. "I have an unemployed relative." No word on which Bernanke family member is out of work.
Jon Hilsenrath of the Wall Street Journal found a clever approach to asking a question on everyone’s mind: Will the end of Bernanke’s term in January 2014 also be the end of his chairmanship. Would he consider a third four-year term (if, that is, President Obama would appoint him to one).
Hilsenrath pointed out that the European Central Bank holds its president to a single eight-year term and that Bernanke will hit the eight-year mark in January. So does Bernanke think that eight years is an appropriate amount of time to lead a central bank? And what are the chairman’s own plans?
Bernanke didn’t bite. “On the latter question, I don’t have anything for you,” he said. “I will be informing the Wall Street Journal and other publications if I come to any decisions or developments on that front.”
Glad we got that cleared up.
Pedro da Costa of Reuters asked about Cyprus, the tiny island nation that is causing big headaches for the euro zone. Do the problems emerging from that small nation tell us something about broader risks in the banking system, da Costa asked?
“It’s a difficult situation in Cyprus,” Bernanke said, noting that “in a financial sense it’s bigger than in a GDP sense.” That is, Cyprus’s banking system is much bigger than its economy. “It’s a difficult problem, because the country faces both fiscal and bank capitalization issues. . . .There are a lot of uncertainties and difficulties, and questions about how the way Cyprus is treated, what implications it might have for other countries and the like.”
“Having said that,” Bernanke continued, “the vote failed, and the markets are up today. I don’t think the impact has been enormous. It’s something we’re paying attention to. We’re hoping the Europeans will come up with an efficient and equitable solution.“
He added that the Fed is monitoring the situation carefully, and that they do not see great risks to the U.S. economy or financial system emerging from Cyprus.
My colleague Ylan Mui gets the first question, and it’s a good one: What might be the thresholds for employment or inflation that would lead the Fed to end its quantitative easing strategy of buying $85 billion in bonds each month to try to stimulate growth and bring down joblessness. Could the Fed offer specific numerical thresholds, as they have for when they might raise short-term interest rates? Probably not, according to Bernanke's response.
“The lack of thresholds comes from the complexity of the problem,” the Fed chief said, adding that he is not prepared to give specific numbers. “We’ll be looking for sustained improvement in a range of labor market indicators,” including payrolls, the unemployment rate, unemployment insurance claims, quit rates and wages. And the Fed would like to see job market improvement “in a way that’s taking place throughout the economy.” Bernanke added, “We’ll also be looking at things like growth to understand if there is sufficient momentum in the economy.”
Translation. When will the Fed stop buying bonds? They’ll know it when they see it.
Fed officials only slightly adjusted their forecasts for how the economy will perform in the future, according to new projections released along with the FOMC's latest statement.
Four times a year, they release data on how they expect growth, unemployment and inflation to evolve in the years ahead. And the March numbers are only slightly changed from December, despite three months of relatively solid economic data mixed with tighter fiscal policy enacted during that time.
The “central tendency” of the 19 Fed officials’ projections was that growth will be in the 2.3 to 2.8 percent range in 2013. In December, that projected range had been 2.3 to 3 percent. The growth forecast for 2014 also edged down. While these are the first projections released since the "sequester" of automatic spending cuts went into effect March 1, the Fed's December forecasts likely reflected expectations of tighter fiscal policy, even if the details of budget austerity were not foreseeable at that time.
The Fed leaders expect the unemployment rate to be 7.3 to 7.5 percent in the final months of 2013, compared to the 7.4 to 7.7 percent expected in December. That may reflect the decline in the rate to 7.7 percent in February.
The officials also expect somewhat lower inflation this year than they did just three months ago; they forecast inflation of 1.3 to 1.7 percent, not the 1.3 to 2 percent of December. That implies that they expect prices to rise more slowly than the 2 percent they aim for, despite high unemployment.
The Federal Reserve, as expected, made no changes Wednesday to its low-interest rate policies or quantitative easing strategy of buying $85 billion in bonds each month. The Federal Open Market Committee, following a two-day meeting, affirmed those policies and only modestly changed its description of the U.S. economic situation. Information received since the last policy meeting “suggests a return to moderate economic growth following a pause late last year.”
The statement acknowledges that “labor market conditions have shown signs of improvement in recent months” but that unemployment has stayed high. “The housing sector has strengthened further, but fiscal policy has become somewhat more restrictive,” the FOMC said.
Add it up, and it’s a pretty straightforward description of the economy that few analysts could disagree with, a sign that Fed officials are acknowledging the recent good data on jobs and consumer spending but that they aren't getting carried away and saying the economy is out of the woods.
There was one dissent, by Kansas City Fed President Esther George, who also dissented at the January meeting and who sees risks of financial bubbles arising from the Fed’s low-interest-rate policies.