Friday, November 4, 2011

Bernanke Conducts Federal Reserve Press Conference (Video, Review) "Fourth quarter will be moderate growth"

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Chairman Ben S. Bernanke conducted the Federal Reserve press conference

Federal Reserve Press Conference
Federal Open Market Committee, November 2, 2011: "Economic growth strengthened somewhat in the third quarter, reflecting in part a reversal of the temporary factors that had weighed on growth earlier in the year. Nonetheless, recent indicators point to continuing weakness in overall labor market conditions, and the unemployment rate remains elevated."

Third Official Federal Reserve Press Conference Federal Reserve Chairman conducted the third official press conference of the Federal Reserve on November 2, 2011. The conference was officially titled "Federal Open Market Committee Press Briefing". Chairman Bernanke noted 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 past remarks his goal was "to reflect the consensus of the Committee (FOMC) while taking note of the diversity of views as appropriate". Bernanke has noted, "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
● Federal funds target rate continues at 0% to 0.25% through mid-2013
● Operation Twist, to extend average maturity of U.S. Treasury securities in portfolio, to continue
● Indirect quantitative easing (Agencies and MBS principal reinvestment) to continue

Summary of Economic Projections
● 2011 GDP projection lowered to 1.6% - 1.7% range from 2.7% - 2.9% range
● 2012 GDP projection lowered to 2.5% - 2.9% range from 3.3% - 3.7% range
● 2011 Unemployment Rate projection raised to 9.0% - 9.1% range from 8.6% - 8.9% range
● 2012 Unemployment Rate projection raised to 8.5% - 8.7% range from 7.8% - 8.2% range
● 2011 PCE Inflation projection raised to 2.7% - 2.9% range from 2.3% - 2.5% range
● 2012 PCE Inflation projection slightly raised to 1.4% - 2.0% range to 1.5% - 2.0% range

Question and Answer Session (including previous press conferences)
● Economic Growth "We did see some improvement in the third quarter, modest improvement. Looks like the fourth quarter as well will be a moderate growth quarter. So there was some improvement. The medium-term outlook, relative to our June projections, has been downgraded. The outlook remains unsatisfactory over the next few years."
● Unemployment "Unemployment being experienced is cyclical, because of inadequate demand in the economy. Then monetary policy by lowering interest rates and making financial conditions more accommodating should stimulate demand, should stimulate spending. Over a period of time, that will help bring down cyclical unemployment. Part of the cyclical unemployment could be structural factors: mismatches between worker skills and job opportunities, loss of skills, geographical mismatches, etc. To the extent that is the case, monetary policy is much less effective. A considerable part of the unemployment we are seeing is cyclical. Cyclical unemployment left untreated can become structural unemployment as people lose skills, lose attachment to the labor force, as their work networks dry up, etc. Unemployment needs to be addressed while it's still amenable to monetary policy."
● Basel III Committed to and in process of implementing Basel III, which has a minimum requirement of 7% and additional surcharges for the largest institutions. "We think that's an appropriate framework".
● Economic Projection Methodology "In retrospect, the severity of the financial crisis and other problems, including the dysfunction in the housing market, have been more severe and more persistent than we initially believed". This has slowed pace of recovery and resulted in FOMC economic projections being overstated. Earthquake in Japan, spike in oil prices, and European debt crisis have been unexpected negatives for economic growth.
MF Global Bankruptcy New York Fed approved MF Global as a primary dealer in February 2011. Fed is not the regulators of MF Global, that is SEC and CFTC. "We do not have ongoing insights in the development of the company". Approving as primary dealer did not in any way constitute a seal of approval. "We've suffered no losses or consequences from our transactions with the company".
● Occupy Wall Street Increasing income inequality over the years. By fostering maximum employment provides more opportunity for all.
● Politics "In the long-term the Fed is accountable to Congress, in the short-term it is important the Fed be free from political pressures. We're not going to take any politics into account."
● Economic Projection "We do believe (economic) growth is going to pick up, but at a somewhat slower pace than we anticipated in April" (June 2011)
 Quantitative Easing exit strategy: no decision yet, first step would allow runoff of portfolio via maturities. (June 2011)
● 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. (June 2011)
● 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. (June 2011)
 "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. (June 2011)
 EU Sovereign Debt Crisis 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". (June 2011)
Bank Capital Requirements 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. (June 2011)
Economic Growth 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." (June 2011)
 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". (June 2011)
 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. (June 2011)
 Fed Policy and actions are aimed at medium term, which can be 1-3 years (April 2011)
 Inflation Target for Fed is 2%. "Reasonable to think core inflation will fall back to mandate consistent levels." (April 2011, reiterated June 2011)

Press Conference with the Chairman of the FOMC, Ben S. Bernanke (November 2, 2011)

Federal Reserve Press Conferences

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 policy making

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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