Ben Bernanke’s press conference is over.
Below is a live-blog of the press conference and Q&A.
Below that is our original analysis of the Federal Reserve’s decision to engage in open-ended QE, along with the full press release out earlier this afternoon.
Meanwhile, this is a huge rager of a market. Dow up 237!
You can watch a livestream here.
Bernanke starts by talking about the unemployment crisis.
Says unlimited purchases should put pressure on downward rates, helping the expansion, and in particularly the housing market.
“If we do not see substantial improvement in the labour market, we will continue our asset purchases.”
2:20: Now explaining the commitment to keep rates low, as well as new economic guidance.
2:22: Before Q&A, Bernanke addressing 3 myths. Denying that the Fed is engaging in fiscal policy.
Now rebuking idea that Bernanke is screwing savers. Says you can’t save without a job. And also inflation helps anyone with a home or other assets.
First big question: What are the specific conditions under which the bond buying will end?
Bernanke: We haven’t yet come to a set of numbers, but we’re guaranteeing that we won’t tighten too soon.
Steve Liesman: Does this mean that tolerance of inflation has grown, if not, what is the point?
Bernanke: The goal isn’t to intentionally raise inflation. We still believe that inflation will be close to our target. We’ll take a balanced approach.
Bernanke now talking about portfolio balance channel. Asset purchases impact everything.
QUESTION: Is this the limit of what the Fed could do? What other tools do you have available?
BERNANKE: The two main kinds of tools we have are balance sheet tools and communication tools. We continue to work on that. Could do more on the communication front.
QUESTION: How does boosting assets really help the real economy?
BERNANKE: There are a number of different channels: Mortgage rates, corporate bond rates, and increase in home prices and stock prices.
QUESTION: Hilsenrath asks Bernanke what “improved substantially” means?
BERNANKE: No defined number, but what we’ve seen in the last 6 months isn’t it.
QUESTION: Why did you choose not to adopt a specific target for the economy?
BERNANKE: What we’re looking for is a general improvement in economy. For example, if you were just going on the unemployment rate, then last month’s fall from 8.3% to 8.1% would have been good, even though it was mostly about the participation rate. So it’s hard to find a hard target.
QUESTION: Greg Ip of the economist asks more about conditioning, and why this new statement is expected to work.
BERNANKE: About future assurance that action will be taken if the economy falters.
QUESTION: What are your plans: Do you intend to stay past 2014? Would you consider a third term? Also: Are you worried about the impact of this on the economy?
BERNANKE: No real BERNANKE, except insistence that there’s no political factors in the decision.
BERNANKE: “We were able to come to a pretty good consensus…as you know, the vote was 11-to-1.” That’s a sign that the committee supports these actions and will continue to support it going forward.
QUESTION: What policy actions would you like to see outside the Fed?
BERNANKE: I would focus on the fiscal side…one very basic thing that could be done to help address the weakness of the recovery would be to address the fiscal cliff while at the same time addressing long term fiscal sustainability issues…If the fiscal cliff is not addressed, we don’t have the tools to offset that.
QUESTION: Are you worried that in promising you do whatever you can, that you give carte blanche to fiscal policy and Congress?
BERNANKE: These [monetary policy] tools are at least able to provide meaningful support to the economy. Of course, we would like to see policies across the board to help address these issues, but that’s not our province.
QUESTION: Regarding raising the funds rate…
BERNANKE: I know Michael Woodford and his work quite well. Communication about future policies is the most important tool we have when rates are at zero. Whether we have the credibility to persuade markets that we will follow through is an empirical question. The evidence when we’ve announced extended guidance is that the markets have responded to that. Our announcements have considerable credibility.
QUESTION: How much further will the new QE drive down mortgage rates? What is a “meaningful effect?”
BERNANKE: It will depend ultimately on 1) the amount of purchases we do, which in turn is a function of how the economy evolves. If the economy is strong enough to generate improving labour market conditions, we’ll do less. The housing market has been one of the “missing pistons in the engine here.” To the extent that we can support housing, I think that would be a useful outcome.
QUESTION: Will there be a meaningful increase in refinancing activity?
BERNANKE: You get more benefit from purchases of new homes. We are trying to support buyers who want to go out and purchase homes.
QUESTION: How much of a headwind to the economy is the fear of the federal government dealing with the fiscal cliff?
BERNANKE: It’s pretty hard to give a number…there was considerable discussion of fiscal policy uncertainty [among the FOMC] and the implications of that for hiring and investment decisions. A lot of firms are waiting to see whether that policy will be resolved…it’s an issue that is of some consequence, yes.
QUESTION: How much was the fiscal cliff a factor in choosing to select open-ended QE as policy?
BERNANKE: If the fiscal cliff does occur…I don’t think the Federal Reserve has the tools to offset that, and we would have to rethink at that point. By taking action now, the economy will be better placed to deal with shocks down the road.
QUESTION: Is the shrinking labour force of specific concern to you?
BERNANKE: Some decline in participation is expected…we’re an ageing society. Female participation is flattening out…we’re seeing lower participation among younger people…part of it is cyclical. The anticipation is that if the economy were really to strengthen, at least some of those people would come into the labour force.
The Federal Reserve decision is out, and it’s a biggie, causing the Dow to surge 155.
There are two main components.
The first is that the Federal Reserve has extended its guidance for low rates through 2015.
The second is that there’s going to be open ended quantitative easing.
The Federal Reserve will buy $40 billion worth of Mortgage Backed Securities without end.
Whereas in the past the Fed always announced a specific amount of QE, this time there will be no stop until the Fed is happy with the pace of recovery.
And stay tuned right here for the Bernanke press conference at 2:15 PM ET.
Information received since the Federal Open Market Committee met in August suggests that economic activity has continued to expand at a moderate pace in recent months. Growth in employment has been slow, and the unemployment rate remains elevated. Household spending has continued to advance, but growth in business fixed investment appears to have slowed. The housing sector has shown some further signs of improvement, albeit from a depressed level. Inflation has been subdued, although the prices of some key commodities have increased recently. Longer-term inflation expectations have remained stable.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee is concerned that, without further policy accommodation, economic growth might not be strong enough to generate sustained improvement in labour market conditions. Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook. The Committee also anticipates that inflation over the medium term likely would run at or below its 2 per cent objective.
To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee agreed today to increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of $40 billion per month. The Committee also will continue through the end of the year its program to extend the average maturity of its holdings of securities as announced in June, and it is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. These actions, which together will increase the Committee’s holdings of longer-term securities by about $85 billion each month through the end of the year, should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.
The Committee will closely monitor incoming information on economic and financial developments in coming months. If the outlook for the labour market does not improve substantially, the Committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability. In determining the size, pace, and composition of its asset purchases, the Committee will, as always, take appropriate account of the likely efficacy and costs of such purchases.
To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens. In particular, the Committee also decided today to keep the target range for the federal funds rate at 0 to 1/4 per cent and currently anticipates that exceptionally low levels for the federal funds rate are likely to be warranted at least through mid-2015.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Dennis P. Lockhart; Sandra Pianalto; Jerome H. Powell; Sarah Bloom Raskin; Jeremy C. Stein; Daniel K. Tarullo; John C. Williams; and Janet L. Yellen. Voting against the action was Jeffrey M. Lacker, who opposed additional asset purchases and preferred to omit the description of the time period over which exceptionally low levels for the federal funds rate are likely to be warranted.
This is it folks: The most anticipated Fed decision of the entire year.
At 12:30, the Federal Open Market Committee will decide whether the weak economy warrants an additional round of asset purchases (QEIII), or whether it will decide to wait until further information comes in.
It may, for example, merely decide to extend its low rates guidance.
Or it could do some combination of a bunch of different things.
For a full preview, we’ve put together the following posts:
- Goldman calls for Fed Double Punch.
- What is Unlimited QE?
- Will the Fed to VE?
- Why this is the most anticipated Fed decision all year.
Keep refreshing this post for the latest.
And as a reminder, after the 12:30 decision, Bernanke follows that up with a press conference discussing the decision at 2:15, which we will also be covering live.
Meanwhile, markets are a touch higher, but gold, oil and the euro just fell sharply, perhaps indicating some kind of last-second fear that there won’t be QE.
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