Wednesday, April 27, 2011

Bernanke Conducts First Federal Reserve Press Conference (Video, Review) *Deficit is top priority long-term*

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Chairman Ben S. Bernanke conducts first Federal Reserve press conference on April 27, 2011

Federal Reserve Press Conference
"The economic recovery is proceeding at a moderate pace and overall conditions in the labor market are improving gradually."
(FOMC Statement, April 27, 2011)

First Official Federal Reserve Press Conference Federal Reserve Chairman conducted the first official press conference of the Federal Reserve on April 27, 2011. The conference was officially titled "Federal Open Market Committee Press Briefing". Chairman Bernanke began the press conference by stating that the Federal Reserve statutory mandate is to "foster maximum employment and price stability" and during his remarks his goal was "to reflect the consensus of the Committee (FOMC) while taking note of the diversity of views as appropriate". Bernanke then reviewed the Federal Open Market Committee (FOMC) Statement, reviewed the Summary of Economic Projections by Federal Reserve Board Members and Federal Reserve Bank Presidents, and concluded by responding to questions from the press.

Federal Open Market Committee Statement
● Indirect quantitative easing (Treasuries and MBS reinvestment) to continue
● Direct quantitative easing to continue ($600 billion by June 30, 2011)
● Federal funds target rate continues at 0% to 0.25% for an extended period
● Reviewed at Federal Reserve: "USA Economic Recovery Proceeding at a Moderate Pace"

Summary of Economic Projections
● GDP projection lowered for 2011 to 3.1% - 3.3% range
● Unemployment Rate projection lowered for 2011 to 8.4% to 8.7% range
● Inflation projection raised for 2011 to 2.1% - 2.8% range
● Reviewed at Federal Reserve Lowers USA GDP Projection for 2011

Question and Answer Session (including general notes from throughout press conference)
 Fed policy and actions are aimed at medium term, which can be 1-3 years
 Inflation target for Fed is 2%
 Transitory factors causing slower Q1 2011 GDP growth: lower defense spending, weaker exports, weather, less overall momentum
 Longer term factors causing slower Q1 2011 GDP growth: weaker construction for residential real estate
 Removal of stimulus dependent on sustainability of recovery, which Fed believes is sustainable
 Secretary of the Treasury is the spokesman for the U.S. policy on the Dollar. Fed believes a strong and stable Dollar is in the best interests of the U.S. and the global economy
 Strong fundamentals for the Dollar are low inflation and a strong economy
● Higher gas and oil prices make economic development less favorable. Most of increase in inflation projection.
● Labor market still not in good shape, 7+ million jobs below pre-recession level
 End of quantitative easing in June unlikely to have significant effects on markets or economy
● Early part of exit strategy will be to stop all or part of indirect quantitative easing (Treasury & MBS reinvestment)
● Cessation of indirect quantitative easing will be based on the sustainability of the recovery and inflation expectations
● Extraordinary measures under extreme circumstances were taken during the financial crisis to stabilize the system
 QE2, second round of quantitative easing, was successful
 The trade-off to do more stimulus is getting less attractive, inflation risk has increased
 Oil prices will stabilize and tend to come down
 Fed looks at medium term inflation expectations, which appear stable
● Long term unemployment is the worst it has been in the post-World War period. No tools to specifically target long term unemployed, just try to improve overall labor market.
 Regarding S&P cutting USA credit outlook to negative: "the United States has a very serious long term fiscal problem"
 Regarding USA debt and deficits: "It is the most important problem, at least in the longer term, that the United States faces. We currently have a fiscal deficit which is simply not sustainable over the longer term. And if not addressed, it will have significant consequences for financial stability, for economic growth, and for our standard of living. We're still a long way from a solution, obviously."
 "Addressing the fiscal deficit, particularly the long run unsustainable deficit, is the top priority. It is very, very important our leaders address this issue."
 So far no fiscal changes, budget cuts, that have changed Fed's near-term outlook.
 Global uncertainty has increased: 1) Middle East & North Africa uprisings have increased oil prices, 2) emerging markets/economies demand has increased commodity prices, 3) European sovereign debt crises, 4) Japan earthquake and nuclear crises.
 "Fed policies will lead to a strong and stable Dollar in the medium term"
 This news conference is to increase transparency and accountability of the Federal Reserve along with FOMC minutes, economic projections, speeches, testimony
● Economic recovery slower after a financial crisis, this is a relatively slow recovery
● Some factors slowing recovery: 1) slow expansion of credit, 2) housing market remains very weak, 3) now high oil prices
● Combination of high unemployment, high gas prices, and high foreclosures rates is a terrible combination and a lot of people are having a very tough time."
 Pace of recovery will pick up over time
 Over time, very confident that the USA will return to being the most productive, one of the fastest growing, and dynamic economies of the world. Hasn't lost any of the preeminent characteristics that made the USA the most preeminent economy in the world before the crisis. Will return to that status as we recover.

Press Conference with the Chairman of the FOMC, Ben S. Bernanke (April 27, 2011)

About Ben S. Bernanke

Ben S. Bernanke began a second term as Chairman of the Board of Governors of the Federal Reserve System on February 1, 2010. Dr. Bernanke also serves as Chairman of the Federal Open Market Committee, the System's principal monetary policymaking

Before his appointment as Chairman, Dr. Bernanke was Chairman of the President's Council of Economic Advisers, from June 2005 to January 2006.

Dr. Bernanke has already served the Federal Reserve System in several roles. He was a member of the Board of Governors of the Federal Reserve System from 2002 to 2005; a visiting scholar at the Federal Reserve Banks of Philadelphia (1987-89), Boston (1989-90), and New York (1990-91, 1994-96); and a member of the Academic Advisory Panel at the Federal Reserve Bank of New York (1990-2002).

From 1994 to 1996, Dr. Bernanke was the Class of 1926 Professor of Economics and Public Affairs at Princeton University. He was the Howard Harrison and Gabrielle Snyder Beck Professor of Economics and Public Affairs and Chair of the Economics Department at the university from 1996 to 2002. Dr. Bernanke had been a Professor of Economics and Public Affairs at Princeton since 1985.

Before arriving at Princeton, Dr. Bernanke was an Associate Professor of Economics (1983-85) and an Assistant Professor of Economics (1979-83) at the Graduate School of Business at Stanford University. His teaching career also included serving as a Visiting Professor of Economics at New York University (1993) and at the Massachusetts Institute of Technology (1989-90).

Dr. Bernanke has published many articles on a wide variety of economic issues, including monetary policy and macroeconomics, and he is the author of several scholarly books and two textbooks. He has held a Guggenheim Fellowship and a Sloan Fellowship, and he is a Fellow of the Econometric Society and of the American Academy of Arts and Sciences. Dr. Bernanke served as the Director of the Monetary Economics Program of the National Bureau of Economic Research (NBER) and as a member of the NBER's Business Cycle Dating Committee. In July 2001, he was appointed Editor of the American Economic Review. Dr. Bernanke's work with civic and professional groups includes having served two terms as a member of the Montgomery Township (N.J.) Board of Education.

Dr. Bernanke was born in December 1953 in Augusta, Georgia, and grew up in Dillon, South Carolina. He received a B.A. in economics in 1975 from Harvard University (summa cum laude) and a Ph.D. in economics in 1979 from the Massachusetts Institute of Technology.

Dr. Bernanke is married and has two children.

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