Federal Reserve Chairman Ben Bernanke just spoke to the press about the Federal Open Market Committee’s newest monetary policy decision.
The most recent statement emphasised downside risks but kept interest rates low and predicted a moderate pace of growth in the coming months.
But there were two big surprises:
– The hawkish “Gang of Three” didn’t dissent with the decision as they have been for the past two statements.
– The dovish Chicago Fed President Charles L. Evans did dissent, arguing that the Fed isn’t being accommodative enough.
Also just out are the Fed’s new economic outlook predictions:
– It lowered GDP growth forecasts for 2011 from 2.7%-2.9% in June to 1.6%-1.7%. For 2012, it revised projections downward to 2.5%-2.9%.
– The Fed boosted unemployment projections to 9.0-9.1% from 8.6%-8.9%.
– The Fed also raised PCE inflation estimates slightly for this year to 1.8-1.9% (they were predicting 1.5%-1.9%). Predictions for next year were relatively unchanged, however, at 1.5%-2.0%.
FROM THE SPEECH: Bernanke explained that the Fed can and will do more to amp up employment and growth if it has to, although it’s holding off for the moment.
He emphasised that the U.S. economy has had a lot of “bad luck” this year, with shocks from Japan and the euro area all playing an important role in dragging down the U.S. economy. With inflation expectations easing off, he said the Fed will be looking for new ways to stimulate the economy if it has to.
Finally, he emphasised the two tools at the Fed’s disposal — asset purchases and increased communication, the latter of could maybe include some sort of NGDP targeting later down the road.
All and all, it was a pretty uneventful conference. However, Bernanke clearly signaled that more easing could be ahead — and perhaps sooner than previously thought.