Federal Reserve officials decided to keep the central bank's balance sheet at a record to spur the slowing economy after ...
Federal Reserve officials decided to keep the central bank’s balance sheet at a record to spur the slowing economy after completing $600 billion of bond purchases this month.
“The economic recovery appears to be proceeding at a moderate pace, though somewhat more slowly than the committee had expected,” Fed Chairman Ben Bernanke said at a news conference after a meeting of the Federal Open Market Committee. Bernanke and his colleagues on the panel cut their growth forecasts for this year and next and raised their estimates for the unemployment rate, driving stocks lower Wednesday.
Bernanke, in his second post-meeting news conference, didn’t specify when the central bank might end its “extended period” of interest rates near zero. At the same time, he stressed that the economy has improved since last August, when he first indicated that the Fed might embark on a second round of large-scale asset purchases to stave off the threat of a broad-based decline in prices.
“The current outlook is significantly different than what we were facing in August of last year,” he said. “We no longer have a deflation risk.”
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Bernanke said that unemployment, now at 9.1 percent, will come down “very painfully, slowly.” Economic growth, which the Fed expects will pick up in the second half of this year, still will not be strong enough to quickly reduce the jobless rate, he said.
Bernanke said some of the reasons for the slowdown, such as supply-chain disruptions caused by the March earthquake and tsunami in Japan and higher commodity prices, will be temporary. Others, including declines in home prices and financial-sector weakness, may be more long-lasting.
“Some of these headwinds may be stronger and more persistent than we thought,” Bernanke said. “We don’t have a precise read on why this slower pace of growth is persisting.”
Against the backdrop, Bernanke is keeping his options open on the Fed’s next step, said Jerry Webman, chief economist and senior investment officer at OppenheimerFunds in New York.
“It’s pretty clear that they don’t see anything on the horizon that would get them to adjust policy one way or the other,” said Webman. “There has got to be a wait-and-see period to see what effects some of these temporary exogenous factors will have.”
Bernanke said the Fed has options to further stimulate the economy, such as undertaking additional bond purchases or strengthening its commitment to holding rates lower for longer.
“They have their own costs,” he said. “But we’d be prepared to take additional action, obviously, if conditions warranted,” he said.
The Fed left its benchmark interest rate in a range of zero to 0.25 percent, where it’s been since December 2008, and repeated a pledge to keep it there “for an extended period.” The decision was unanimous. Bernanke said an “extended period” means the Fed would maintain rates at low levels for at least two or three meetings. The Fed meets eight times a year.
“The thrust of extended period is that we believe we’re at least two or three meetings away from taking any further action,” he said. “And I emphasize at least. But depending on how the economy evolves, and inflation and unemployment, it could be, you know, significantly longer.”
“They want to keep as accommodative as possible for as long as they can to hopefully add some juice to the economy and raise demand until the recovery is on a firmer footing,” said Sam Bullard, a senior economist at Wells Fargo Securities.