FOMC: Press Conference on March 20, 2013

Transcript of Chairman Bernanke’s Press Conference
March 20, 2013
CHAIRMAN BERNANKE. Good afternoon.
The Federal Open Market Committee concluded a two-day meeting earlier today. As always, my colleagues and I reviewed recent economic and financial developments and
discussed the economic outlook. The data since our January meeting have been generally consistent with our expectation that the fourth-quarter pause in the recovery would prove
temporary and that moderate economic growth would resume. Spending by households and businesses has continued to expand, and the housing sector has seen further gains. The jobs market has also shown signs of improvement over the past six months or so: Private payrolls are growing more quickly, total hours of work have increased, the rate of filings of new claims for unemployment insurance has fallen, and the unemployment rate has continued to tick down.
However, at 7.7 percent, the unemployment rate remains elevated. The Committee also remains concerned that restrictive fiscal policies may slow economic growth and job creation in coming months.
We continue to monitor the recent increases in gasoline prices, which appear to be due mostly to passing factors such as refinery shutdowns for maintenance. Apart from temporary
variations in energy prices, inflation is running somewhat below the Committee’s longer-run objective of 2 percent. Importantly, longer-term inflation expectations remain stable. Overall, still-high unemployment, in combination with relatively low inflation, underscores the need for policies that will support progress towards maximum employment in a context of price stability.
In conjunction with this meeting, the 19 participants in our policy discussion—the 7 Board members and 12 Reserve Bank presidents—submitted individual economic projections.
As always, each participant’s projections are conditioned on his or her own view of appropriate monetary policy. To summarize, the participants’ projections for economic growth have a central tendency of 2.3 to 2.8 percent for 2013, rising to 2.9 to 3.7 percent in 2015. The central tendency of their projections of the unemployment rate for the fourth quarter of this year is 7.3 to 7.5 percent, declining to 6.0 to 6.5 percent in the final quarter of 2015. Most participants see inflation gradually increasing toward the Committee’s longer-run target; the central tendency of their projections for inflation is 1.3 to 1.7 percent this year and 1.7 to 2.0 percent in 2015.
As you already know from the policy statement, we are continuing the asset purchase program first announced in September. This decision was supported by our review at the
meeting of the likely efficacy, costs, and risks of additional purchases. Let me briefly summarize the cost–benefit analysis supporting our decision.
Although estimates of the efficacy of the Federal Reserve’s asset purchases are necessarily uncertain, most participants agreed that these purchases—by putting downward
pressure on longer-term interest rates, including mortgage rates—continue to provide meaningful support to economic growth and job creation. However, most also agreed that this monetary tool would likely not be able on its own to fully offset major economic headwinds, such as those that might arise from significant near-term fiscal restraint or from a sharp increase in global financial stresses.

We also had a thorough discussion of possible costs and risks of continued expansion of the Federal Reserve’s balance sheet. The risks include possible adverse implications of
additional purchases for the functioning of securities markets, and the potential effects—under various scenarios—of a larger balance sheet on the Federal Reserve’s earnings from its asset holdings and, hence, on its remittances to the Treasury. The Committee also considered possible risks to financial stability, such as might arise if persistently low rates lead some market participants to take on excessive risk in a “reach for yield.” In the Committee’s view, these costs remain manageable but will continue to be monitored, and we will take them into appropriate account as we determine the size, pace, and composition of our asset purchases.

As for today, our policy decision had two main elements. First, the Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month. It bears emphasizing that the Committee has described this program in terms of a monthly pace of
purchases, rather than as a total amount of expected purchases, and has tied the evolution of the program to economic criteria—specifically, to the achievement of a substantial improvement in the outlook for the labor market in a context of price stability. Within this framework, the Committee could vary the pace of purchases as progress is made toward its economic objectives or if its assessment of the efficacy and costs of the program changes. At this meeting, the Committee judged that no adjustment was warranted.

Second, the Committee kept the target for the federal funds rate at 0 to ¼ percent and reaffirmed its expectation that a highly accommodative stance of monetary policy will remain
appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, we anticipate that this exceptionally low range for the funds rate will be appropriate at least as long as the unemployment rate remains above 6½ percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s longer-run inflation goal of 2 percent, and longer-term inflation expectations continue to be well anchored.
I should note, as I have on other occasions, that the economic conditions provided in this forward guidance are thresholds, not triggers.

Crossing one or more of these thresholds will not lead automatically to an increase in rates. Rather, the Committee will assess at that time whether the outlook justifies raising its target for the federal funds rate. This guidance will help market participants assess how the Federal Reserve’s interest rate policy is likely to respond to economic
developments, but its broader purpose is to assure households and businesses that monetary policy will continue to support the recovery even as the pace of economic growth and job creation picks up. In their individual projections, 14 of the 19 FOMC participants saw the first increase in the target for the federal funds rate as occurring in 2015 or 2016.
Let me comment briefly on how the two main pieces of our policy accommodation—asset purchases and guidance about future changes in the federal funds rate—fit together. The
purpose of the asset purchases is to increase the economy’s near-term momentum, with the goal of improving the outlook for the labor market and helping to promote a self-sustaining recovery with price stability. The forward rate guidance, in turn, provides information about when the Committee will begin considering the removal of policy accommodation through increases in the target for the federal funds rate. Importantly, the Committee expects a considerable interval to pass between the time when the Committee will cease adding accommodation through asset purchases and the time when it will be appropriate to begin removing accommodation by moving the federal funds rate target toward more normal levels. As always, in deciding on the appropriate stance of policy, the Committee will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.

In sum, the Committee anticipates moderate economic growth, supported by household and business spending and a strengthening housing sector. The labor market has shown signs of improvement in recent months, but the unemployment rate remains elevated. Inflation is expected to remain low, and fiscal policy has become somewhat more restrictive. In light of its outlook, and following a review of the efficacy and costs of additional asset purchases, the Committee today reaffirmed its asset purchase program and its federal funds guidance.

Thank you very much.