WASHINGTON (MNI) – The following is the text of the opening
statement from Federal Reserve Chairman Ben Bernanke following the
September FOMC statement, Wednesday.
Good afternoon. Earlier today the federal open market committee
approved new measures to support the recovery and employment growth.
I’ll get to the specifics of our actions in a few moments but I’d first
describe the economic conditions much motivated the committee’s decision
to take additional actions. As you know, the federal reserve conducts
monetary policy under a dual mandate from Congress to promote maximum
employment and price stability. The United States has enjoyed broad
price stability since the mid-1990s and continues to do so today. 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. The weak
job market should concern every American. It imposes hardship on people
and a waste on human skills and talents. 500,000 people have been
employed.
Many are doubtless because they’ve given up finding suitable work.
As the skills of the long-term employed at fee and wither, they may find
it increasingly difficult to get good jobs to their and their family’s
cost, of course, but also to the detriment of our nation’s productive
potential. To help bolster the recovery and promote price stability the
FOMC made accommodation in recent years. With our main policy interest
rate near its effective lower bound, we’ve been using two complementary
tools to carry out monetary policy. Balance sheet actions and forward
guidance regarding how long we anticipate maintaining exceptional levels
of policy accommodation. While providing the support we’ve been
carefully weighing the benefits and cost of each new policy action and
recognizing that monetary policy cannot cure all economic ills. The FOMC
has taken several actions this year. In January, it extended its forward
guidance, stating that it anticipated the federal funds rate will remain
near current levels until late 2014.
In June the committee decided to continue through the end of the
year the previously established program to extend the average maturity
of the securities it holds by buying longer term securities and selling
an equivalent amount of shorter term securities. However, incoming data
confirm that the modest pace of growth continues to be inadequate to
generate much progress on unemployment. With inflation anticipated to
run at or below or 2% objectives the committee has become convinced that
further policy accommodation is warranted to strengthen the recovery and
support the gains we’ve begun to see in housing and other sectors. The
FOMC decided new actions electing to expand its securities and guidance
regarding the federal funds rate. Specifically, the committee decided to
purchase additional agency mortgage-backed securities or MBS at a pace
of $40 billion per month. The new MBS purchases combined with the
existing maturity extension program and the continued reinvestment of
principal payments from agency debt and agency MBS already on our
balance sheet will result in an increase in our holdings of longer term
securities of about $85 billion each month for the remainder of the
year. The program of MBS purchases should increase the downward pressure
of long-term interest rates more generally but ols mortgage rates
specifically which would provide further support for the housing sector
by encouraging home purchases and refinancing.
The committee also took two steps to underscore its commitment to
ongoing support for the recovery. First, the committee will closely
monitor incoming information on economic and financial developments in
coming months and if we do not see substantial improvement in the
outlook for the labor market we will continue the MBS purchase program,
undertake additional asset purchases and employ our policy tools as
appropriate until we do. We will be looking for the sort of broad based
growth in jobs and economic activity to signal sustained improvement in
labor market conditions and sustaining employment. Of course, in
determining the size, pace and composition of any additional asset
purchases, we will as always take appropriate account of the inflation
outlook and of their efficacy and costs.
Additionally, the committee emphasized to remain appropriate after
the recovery strengthens. This should provide greater assurance to
households and businesses that policy accommodation should remain even
as the economy picks up. In particular, the committee today kept a
target range for the federal funds rate at 0 to one-fourth percent and
stated that exceptionally low levels for the federal funds rate are
likely to be warranted at least until mid-2015.
In conjunction with today’s meetings, FOMC participants the seven
board members and 12 reserve bank presidents submitted their individual
economic projections and policy assessments for the years 2012 through
2015 and over the longer run. Committee participants projections for the
unemployment rate in the fourth quarter of this year have a central
tendency of 8.0 to 8.2% declining to 6.0 to 6.8% in the fourth quarter
of 2015, levels that remain somewhat above participants’ estimates of
the longer run normal rate of unemployment.
Participants projections of inflation have a central tendency of
1.7% to 1.8% for this year and 1.8% to 2.0% for 2015. While the economy
appears to be advancing at that moderate pace with some improvements
appearing in housing and elsewhere, FOMC participants see an economic
outlook that remains uncertain. The economy continues to face economic
head winds including the situation in Europe, tight credit for some
borrowers and fiscal contraction at the federal, state and local levels.
In addition, strains in global financial markets continue to pose
significant downside risks.
Before I take your questions, I’d like to briefly address three
concerns that have been raised about the federal reserve’s accommodative
monetary policy. The first is the motion that the federal reserve
security purchases are Akin to fiscal spending. The second is that a
policy of very low rates hurt savers. The third is that the federal
reserve’s policies risk inflation down the road.
On the first concern I want to emphasize that the fed’s purchases
of longer term securities are not comparable to government spending. The
federal reserve buys financial assets not goods and services. Ultimately
the federal reserve will normalize its balance sheet by selling these
financial assets back into the market or by allowing them to mature. In
the interim, the federal reserve’s earnings from its holdings of
securities are remitted to the treasury. In fact, the odds are strong
that the fed’s asset purchase programs both through their net interest
earnings and by strengthening the overall economy will help reduce
rather than increase the federal deficit and debt.
On the second concern, my colleagues and their 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. And finally, on inflation, inflation has
varied in recent years with swings in fuel prices caused by a range of
factors such as drought and geopolitical tensions. However, overall
inflation has averaged very close to the committee’s goal of 2% per year
for quite a few years now in a variety of measures show longer term
expectations are stable. The federal reserve is fully committed to both
sides of its mandate, to price stability as well as the maximum
employment and it has both the tools and the will to act at the
appropriate time to avoid any emerging threat to price stability. Thank
you. I’d be happy to respond to your questions.
** MNI Washington Bureau: 202-371-2121 **
[TOPICS: M$U$$$,MMUFE$,MGU$$$,MFU$$$,MT$$$$]