WASHINGTON (Reuters) - Below are highlights from Federal Reserve Chairman Ben Bernanke’s news conference following the Fed’s policy meeting on Wednesday.
“We believe that a good bit of the unemployment were are seeing is what economists would call cyclical unemployment, that is unemployment arising because of inadequate demand in the economy. If that is the case, then monetary policy by lowering interest rates, making financial conditions more accommodative, should stimulate demand, stimulate spending and over a period of time that should help bring cyclical unemployment down. It’s also possible that some of the increase in unemployment reflects so-called structural factors, mismatches between worker skills and job opportunities, loss of skills, geographical location, etc. If that’s the case then monetary policy is much less effective because only other kinds of labor market policies can make progress against that type of unemployment. But again I do think that a considerable part of the unemployment that we are seeing is cyclical. Final comment, cyclical unemployment left untreated, so to speak, for a long time can become structural unemployment as people lose skills, they lose attachment to the labor force.”
There is no final outcome here in this discussion. Clearly there is a range of things that we can do. We can give more information about our objectives. For example we can provide information about where we want inflation to be in the long-term. We can also provide information about the future path of interest rates. An alternative approach is to tie that to economic conditions and provide information about under what circumstances that we would raise rates. It’s certainly something that we have discussed, I think it’s an interesting alternative. There is a lot of interest is using the survey of economic projections in constructive ways.”
“One area where monetary policy has been blunted, the effects have been blunted, has been the mortgage market, where very tight credit standards have prevented many people from purchasing or refinancing their homes and therefore the low mortgage rates that we have achieved have not been as effective as we had hoped. So monetary policy may be somewhat less powerful in the current context than it has been in the past, but nevertheless it is affecting economic growth and job creation.”
“I would argue that we’ve also been successful in some of the later actions that we’ve taken, although it’s early to say for things like the maturity extension program. But we always face the problem of asking the question, ‘where would we be without these policies?’ Our best estimates are that absent the support of monetary policy, the economy would be in a much deeper ditch and unemployment would be much higher than it is. That being said, you know, again, people rightly recognize that we haven’t gotten the economy back to where we want it to be and their dissatisfaction is perfectly understandable.”
“The committee strives to explain its monetary policy decisions as clearly as possible and we continue to explore ways of enhancing the clarity for public communications. Specifically, we have begun engaging in a series of discussions about potential approaches to reminding the public additional information about our momentary policy goals and policy strategy, as well as about our outlook for the economy and for the future stance of monetary policy. However, no decisions about such approaches were made at this meeting.”
“It appears to be an idiosyncratic case and we are monitoring the possible impacts on funding markets and elsewhere, and so far we have not seen any significant impact on financial stability.”
“Ultimately, we’d like to return to a portfolio of Treasuries only. That may be some time down the road.”
“As part of our policy action at the last meeting, we began to reinvest mortgage backed securities and agency debt back into mortgage backed securities to provide additional support for the mortgage market.”
“The housing sector is a very important sector. Problems in that sector are big reason why our economy’s not recovering more quickly. I do think that purchases of mortgage backed securities is a viable option. Certainly, something we would consider if the condition were appropriate. So the answer is yes, we will certainly look into that.”
“As I’ve said before, I understand that many people are dissatisfied with the state of the economy. I’m dissatisfied with the state of the economy. Unemployment is far too high. Inequality, which is not a new phenomenon — increases in inequality have been going on for at least 30 years — but as that has continued, we have a more unequal society than we’ve had in the past.
“I think that the concerns about the Fed are based on misconceptions. The Federal Reserve was involved, obviously in trying to stabilize the financial system in 2008-2009. A very simplistic interpretation of that was because we wanted to preserve bankers’ salaries. That obviously wasn’t the case. What were doing was trying to protect the financial system in order to prevent a serious collapse of both the financial system and the American economy.”
“With respect to the current economy we are currently continuing our accommodative monetary policy. We are trying to do our best to support economic growth and job creation. It would be helpful if we could get assistance from some other parts of the government to work with us to help create more jobs. But certainly we are doing our part to create more jobs, more opportunities in America.”
“Politics is politics and the Federal Reserve tries to stay nonpartisan. Our job is to do the best we can for the U.S. economy, to do what we can to attain our mandate of maximum employment and price stability. Although we must be accountable to Congress over the longer-term, in the short-term it’s very important that the Fed be free from political pressures. Therefore we are going to make our decisions based on what is good for the economy, we are not going to take politics into account.”
“The committee expects only a moderate pace of economic growth over coming quarters reflecting ongoing drags from the troubled housing sector, still-tight credit conditions for many households and smaller businesses, volatility in financial markets, fiscal consolidation at all levels of government and other factors.”
“The pace of progress is likely to be frustratingly slow.”