What Did Bernanke Say About the FOMC's Economic Outlook?

TL;DR

Chairman Bernanke confirmed the Federal Reserve will maintain its monetary policy of reinvesting principal payments and completing $600 billion in Treasury purchases. The FOMC projects moderate economic growth and a gradual decline in unemployment, with higher oil prices expected to have a temporary effect on inflation, which is forecasted to stabilize over time. Long-term unemployment remains a concern, necessitating continued job creation efforts.

Transcript

Transcript of Chairman Bernanke's Press Conference April 27, 2011 CHAIRMAN BERNANKE. Good afternoon. Welcome. In my opening remarks, I'd like to briefly first review today's policy decision. I'll then turn next to the Federal Open Market Committee's quarterly economic projections also being released today, and I'll place today's policy decision in ... Read More

Key Insights

• 🌱 The Fed maintains its policy of reinvesting principal payments and completes planned purchases of longer-term Treasury securities.
• ☠️ The Committee projects moderate economic growth to continue through 2011 and expects a gradual decline in the unemployment rate.
• ✋ The Fed expects higher oil prices to have transitory effects on inflation, with inflation returning to mandate-consistent levels in the medium term.
• 🍉 Long-term unemployment remains a significant concern, and the Fed's efforts aim to support job creation and mitigate the negative effects of prolonged unemployment.
• 🤙 The Fed recognizes the importance of addressing the fiscal deficit and calls for credible commitments to long-term fiscal sustainability. Failure to address the deficit could have significant consequences for financial stability and economic growth.
• 👹 The Fed expects a moderate and temporary impact on the U.S. economy from the Japanese earthquake and ongoing global uncertainties.

Questions & Answers

Q: What caused the weak growth in the first quarter, and why was the forecast for 2011 GDP downgraded?

The slowdown in the first quarter was likely due to transitory factors such as lower defense spending and weaker exports. The forecast for 2011 GDP was revised down to account for weaker construction and slower-than-anticipated growth.

Q: When does the Fed need to begin withdrawing its stimulus, and what does the "extended period" mean for monetary policy?

The timing of tightening policy depends on the outlook for the economy, including sustained improvement in the labor market and stable inflation. The term "extended period" refers to maintaining accommodative monetary policy as long as there is slack in the labor market, subdued inflation, and stable inflation expectations.

Q: How does Fed policy impact the value of the dollar, and how do you respond to critics who claim it reduced Americans' standard of living?

The Fed believes a strong and stable dollar is in the best interest of the US and the global economy. Fed policy aims to maintain low inflation, which supports the purchasing power of the dollar. Most central banks aim for inflation above zero, as zero inflation increases the risk of deflation and falling wages and prices.

Q: Can the Fed do anything to prevent the impact of rising gasoline and food prices on inflation and the economy?

The Fed expects higher commodity prices to have transitory effects on inflation. As gasoline prices stabilize or come down, inflation should decline. The Fed will monitor inflation expectations and possible second-round effects, but there is little it can do to directly control gas prices.

Q: Can the Fed effectively reduce long-term unemployment, and if not, what interventions would be more effective?

The Fed's monetary policies aim to support job creation and a sustainable recovery, which can help mitigate long-term unemployment. However, for individuals who have been out of work for an extended period, job training, education, and other interventions may be more effective in increasing their employment prospects.

Summary & Key Takeaways

• Chairman Bernanke reviews the Committee's decision to maintain its existing policy of reinvesting principal payments and complete the planned purchases of longer-term Treasury securities.

• He discusses the Committee's projections for economic growth, unemployment rate, and inflation rate for the years 2011 to 2013.

• Bernanke emphasizes the importance of maintaining low and stable inflation and the need for a sustained period of stronger job creation for a fully established recovery.