At a rare FED press conference today Bernanke says the FED bond buying
stops later this year. He also says that there will be no major
effect to the economy.
Check out this article from Bloomberg about the details. I'm just a
little curious as to why we were buying the bonds in the first place
if not buying them will have no major impact to the stimulus and the
economy. There I go again..
April 27 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke said
the end of the Fed’s $600 billion bond-buying program in June probably
won’t have a “significant” effect on financial markets or the economy,
and the central bank will likely continue reinvesting maturing debt
after June.
“We are going to complete the program at the end of the second
quarter,” he said at his first press conference following a policy
meeting. “The end of the program is unlikely to have a significant
effect on financial markets or the economy.”
Bernanke spoke after the central bank today reiterated its view that
surging commodity prices are likely to have a transitory effect on
inflation and agreed to finish its program of large-scale asset
purchases on schedule. U.S. stocks rose, sending benchmark indexes to
almost three-year highs, and Treasuries fell after the Fed renewed its
pledge to keep rates low for an “extended period.”
In his press conference, Bernanke said the central bank is likely to
continue reinvesting its securities holdings, including
mortgage-backed securities, as they mature even after June.
“We are going to continue to reinvest maturing securities, both
Treasuries and MBS, so the amount of securities that we hold will
remain” approximately constant, he said. “The amount of monetary
policy easing should remain constant going forward from June.”
Monetary Stimulus
When the Fed begins unwinding its record monetary stimulus, “it’s very
likely that an early step would be to stop reinvesting all or part of
the securities which are maturing,” he said. “That step, though a
relatively modest step, does constitute a policy tightening,” Bernanke
said.
Bernanke has signaled he’ll maintain record stimulus until job growth
accelerates and the recovery is robust enough to withstand tighter
credit. The Fed chief has said he expects that a surge this year in
fuel and food costs will have only a passing inflationary impact,
differing with Fed regional bank presidents who say low borrowing
costs may push up prices.
The Fed left its benchmark interest rate in a range of zero to 0.25
percent, where it’s been since December 2008. The central bank will
keep reinvesting proceeds of maturing mortgage debt purchased in the
first round of large-scale asset purchases that lasted from December
2008 to March 2010.
Forecasts Changed
Policy makers, in a release after the statement, lowered their
forecasts for economic growth this year and raised estimates for a key
gauge of inflation that excludes volatile food and energy prices. The
projections of governors and regional bank presidents were released
three weeks sooner than prior practice.
The range of estimates for growth this year was cut to 3.1 percent to
3.3 percent, from 3.4 percent to 3.9 percent in January. Estimates for
the personal consumption expenditures index, minus food and energy,
ranged from 1.3 percent to 1.6 percent, up from a prior range of 1
percent to 1.3 percent.
Fed officials’ central tendency forecast for the average unemployment
rate in the final three months of 2011 fell to 8.4 percent to 8.7
percent versus 8.8 percent to 9.0 percent in January. Their estimate
for unemployment at the end of 2012 was in a range of 7.6 percent to
7.9 percent versus 7.6 percent to 8.1 percent in January.
“The labor market is improving gradually,” Bernanke said at the press
conference. “The longer it goes on, the more confident we are.”
‘Deep Hole’
“We are digging ourselves out of a deep hole,” Bernanke said,
referring to the jobs lost during the recession.
The Fed’s commitment to record stimulus contrasts with the
interest-rate increase this month by the European Central Bank and
tightening this year by the biggest emerging-market economies,
including China, Brazil and India, which face faster inflation.
Bernanke became the first Fed chairman to conduct a press briefing
following an FOMC decision when he took the microphone at the Fed’s
headquarters. His counterparts in Europe, Japan, the U.K. and Canada
already hold regular news conferences.
The press conference, broadcast on television and the central bank’s
website, marks one of Bernanke’s biggest efforts to improve the Fed’s
connections with the public and demystify the institution, which as
recently as 1993 didn’t announce its monetary-policy decisions.
Bernanke said in February that the central bank was weighing benefits
of more transparency against the risk that his remarks would trigger
unwanted fluctuations in financial markets.
Tighten Credit
Increases in employment and inflation are helping drive calls to
tighten credit. Payrolls have increased by an average 149,000 a month
for the past six months, while the unemployment rate has dropped by 1
percentage point since November to 8.8 percent, a two-year low.
Federal Reserve Bank of New York President William C. Dudley, the
FOMC’s vice chairman, reiterated in a speech April 1 that a faster
pace of job growth is “sorely needed” and that even with 300,000 new
jobs per month, the labor market would still have “considerable slack”
at the end of 2012.
Janet Yellen, vice chairman of the Fed’s Board of Governors, said
April 11 that the increase in food and fuel costs will have only a
temporary impact on prices and consumer spending, and warrants no
reversal of monetary stimulus.
Gas Price Rose
Food and beverage prices rose in the first quarter by the most since
2008, based on the Labor Department’s Consumer Price Index, while the
cost of regular-unleaded gasoline has increased by 26 percent this
year to $3.88 a gallon as of yesterday.
The increases helped slow U.S. growth to a 2 percent pace in the first
quarter, according to the median estimate of analysts surveyed by
Bloomberg News, from 3.1 percent in the prior period. The government
releases preliminary figures tomorrow.
The Commerce Department’s personal consumption expenditures price
index, excluding food and energy, rose 0.9 percent in February from a
year earlier. Policy makers have a long-run goal for total inflation
of about 1.6 percent to 2 percent annually.
Economists say the Fed is at least a few months away from starting to
reverse the stimulus. Most of the 44 economists surveyed by Bloomberg
News from April 20 to April 25 said the central bank this year will
probably halt its policy of replacing maturing mortgage debt with
Treasuries. The majority of respondents also said the Fed will
announce a plan next year of selling mortgage bonds and Treasuries
among its assets.
--Editors: Christopher Wellisz, James Tyson
To contact the reporter on this story: Scott Lanman in Washington at
slanman@bloomberg.net; Joshua Zumbrun in Washington at
jzumbrun@bloomberg.net.
To contact the editor responsible for this story: Christopher Wellisz
at
cwellisz@bloomberg.net.
