The following are selected highlights from Federal Reserve Chairman Ben Bernanke’s press conference:
Why the Fed is acting: The employment situation, however, remains a grave concern. While the economy appears to be on a path of moderate recovery it isn’t growing fast enough to make significant progress reducing the unemployment rate. Fewer than half of the 8 million jobs lost in the recession have been restored. And at 8.1% the unemployment rate is nearly unchanged since the beginning of the year and its well below its normal levels.
On impact on savers: My colleagues and [I are] very much aware that holders of interest bearing assets such as certificates of deposit are receiving very low returns. But low interest rates also support the value of many other assets that Americans own, such as homes and businesses, large and small. Indeed, in general, healthy investment returns could not be sustained in a weak economy and, of course, it’s difficult save for retirement or other goals without the income from a job. Thus, while low interest rates do impose some costs, Americans will ultimately benefit most from the healthy and growing economy that low interest rates help promote.
On how much inflation Fed will tolerate: Well, our policy approach doesn’t involve intentionally trying to raise inflation. That’s not the objective. It’s to ensure that we have enough support to have the economy grow and bring unemployment over time. We’ve seen unemployment 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 -- that’s what we’ll be looking at... if inflation goes above the target level as we talked about in our statement in January, we take a balanced approach. We bring inflation back to the target over time but we do it in the way that takes into account the deviations from both of their targets.
How much will QE3 reduce unemployment? Well, what happens is going to depend on where the economy goes. How much ultimate accommodation we give the economy. The .4% 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’s appropriate so some of them may have assumed these policies in their last projections and not all are assuming these policies in these projections so it’s a little bit of an understatement in what we think we can get. In any case, again, I want to be clear 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.
What else can the Fed do? Well, there’s a variety of possibilities and we continue to look at all different options but the two primary types of tools, as I’ve discussed, are balance sheet actions and, of course, we can restructure those, change those in various ways. The other type of tool is communication tools. And we could -- we continue to work on how best to communicate with the public and how best to assure the public that the fed will remain accommodative long enough to ensure recovery so working with our communications tools, clarifying our response to economic conditions might be one way in which we could further provide accommodation.
How much improvement in the labor market does the Fed need to see before stopping? 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 -- 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.
Why not a specific target? Well, the problem is that for this purpose that what we’re looking for is a general improvement in the labor market conditions. We want to see the unemployment rate come down, but that’s not the only indicator, obviously, of labor market conditions. 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’s going to cause us to radically shift our policy.
On division at the Fed: Well, as you know, we’re living in a very complex time. And dealing with a complex economic situation in 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 spans a range of views. We were, however, to come to a good consensus as you know the vote on this was 11-1 and that’s a sign that the broad center of the committee does support these actions and will continue supporting them going forward.