Friday, June 24, 2011

Bernanke Conducts June 2011 Federal Reserve Press Conference (Video, Review) "We'll see greater growth going forward"

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Chairman Ben S. Bernanke conducted the Federal Reserve press conference

Federal Reserve Press Conference
"The economic recovery is continuing at a moderate pace, though somewhat more slowly than the Committee had expected. Also, recent labor market indicators have been weaker than expected." (FOMC Statement June 22, 2011)

Second Official Federal Reserve Press Conference Federal Reserve Chairman conducted the second official press conference of the Federal Reserve on June 22, 2011. The conference was officially titled "Federal Open Market Committee Press Briefing". Chairman Bernanke began the press conference by stating he would review the FOMC policy decisions in context of their economic projections and policy strategy. 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". He added, "Of course, my remarks and interpretations are my own responsibility." 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 answering questions from the press.

Federal Open Market Committee Statement
● Indirect quantitative easing (Treasuries and MBS principal reinvestment) to continue
● Direct quantitative easing to end ($600 billion total ends June 30, 2011)
● Federal funds target rate continues at 0% to 0.25% for an extended period

Summary of Economic Projections
● GDP projection lowered for 2011 to 2.7% - 2.9% range
● Unemployment Rate projection raised for 2011 to 8.6% to 8.9% range
● PCE Inflation projection lowered for 2011 to 2.3% - 2.5% range
● Reviewed at Federal Reserve Lowers USA GDP Projection for 2011

Federal Reserve Press Conferences
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 (April press conference)
 Inflation target for Fed is 2% (April press conference, reiterated in June) "Reasonable to think core inflation will fall back to mandate consistent levels."
 End of quantitative easing in June unlikely to have significant effects on markets or economy (April press conference)
 Quantitative easing exit strategy: no decision yet, first step would allow runoff of portfolio via maturities
● "We do believe (economic) growth is going to pick up, but at a somewhat slower pace than we anticipated in April"
● Current economic slowdown due to headwinds, such as longer-lived weakness in financial sector, housing sector
 Additional asset purchases, quantitative easing, QE3: QE2 in August 2010 included deflation risk (inflation was too low and falling) and unemployment could possibly rise again, there has now been improvement in labor market and no deflation risk. "Economic outlook significantly different than in August 2010".
QE3: "We are in a different position today, certainly not where we'd like to be, but closer to the (Federal Reserve) dual mandate objectives than we were at that time (August 2010 and QE 2)".
Would federal budget cuts help or hinder the economy? Depends on the timing. Advocated budget cuts focus on the longer-term (10 years is the window and even longer for entitlement reform). Very desirable to take action to lower the budget deficits over the longer-term. In light of the weakness of the recovery, best to not have sudden and sharp fiscal consolidation in the very near-term. It is negative for economic growth. 
Deficit vs. Jobs Sharp decreases in deficit would not create more jobs. Already seeing a certain amount of "fiscal drag" coming from state and local governments as well as the withdrawal of previous federal stimulus. Fiscal tightening is at best neutral and is somewhat negative for job creation.
 "Our budgetary problems are very long-run in nature. The sooner we can act the better. But the most efficient and effective way to address our fiscal problems is to take a longer-run perspective and not to focus the cuts heavily on the near-term." Long-run, credible plan needed and will lower interest rates and increase confidence. 
 Federal Reserve has been "assiduous" in examining the exposure of USA banks to the debt of problem European countries. "The banks we regulate are not significantly exposed." "The effects are very small" in the event of a default. Market effects would be "significant".
● Believes it is important to have higher capital requirements for the most important systemic financial institutions. The need for safety of systemically important firms. Federal Reserve does cost-benefit analysis, and publishes, for each regulation.
 What does "extended period" of low interest rates mean? At least 2 or 3 meetings away from taking any further action. "And I emphasize 'at least'". Improved job market and inflation close to target would mean need to consider an exit process, i.e., raise interest rates. "We're not there at this point."
● Bernanke's economic projections vs. other members of FOMC: view slowdown at least partly temporary. "We'll see greater growth going forward. Growth in near-term will be less than we anticipated."
 Tax and Spending Policy: "We need to very seriously and urgently address the overall fiscal situation, in particular by taking a long-run perspective. Exactly how that is done is really the responsibility of Congress. Addressing the long-run deficit problem is very urgent."
 Jobs Growth: "We'll see payroll numbers improving relatively soon", based on economic projections. Unemployment and rate to come down "very painfully and slowly". "We're still some years away from full employment".
 Housing sector weakness: Lower rates maintained to assist housing market. Credit standards for mortgages have tightened considerably. Bottom third of people who could have qualified for a mortgage a few years ago cannot now. Uncertainty over employment and economic recovery is affecting decisions to purchase homes.

Press Conference with the Chairman of the FOMC, Ben S. Bernanke (June 22, 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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