Wednesday, September 18, 2013

A Few Comments on Bernanke Press Conference and Fed Policy

by Bill McBride on 9/18/2013 03:49:00 PM

• At the June FOMC press conference, Fed Chairman Ben Bernanke said (emphasis added):

"If the incoming data are broadly consistent with this forecast, the Committee currently anticipates that it would be appropriate to moderate the monthly pace of purchases later this year. And if the subsequent data remain broadly aligned with our current expectations for the economy, we would continue to reduce the pace of purchases in measured steps through the first half of next year, ending purchases around midyear. In this scenario, when asset purchases ultimately come to an end, the unemployment rate would likely be in the vicinity of 7%, with solid economic growth supporting further job gains, a substantial improvement from the 8.1% unemployment rate that prevailed when the committee announced this program."
• At the press conference today, Bernanke said the data was "close" to being consistent with their forecasts, but that the committee would like further confirmation before starting to reduce asset purchases. Bernanke said it is still “possible” to start reducing asset purchase this year, but that “there is no fixed calendar schedule". This seems a little less certain of starting to taper this year than Bernanke's comments in June.

• Bernanke made it clear that the committee considers all FOMC meetings important, not just meetings with a scheduled press conference. He said a conference call (or briefing) could be arranged if the press needed to ask questions following a meeting with no scheduled press briefing. Bernanke said: "We certainly could arrange a public, on-the-record conference call or some other way of answering the media's questions." This suggests that the FOMC could start to taper at the October meeting even though there is no scheduled press conference (Oct 29th and 30th), or wait until December - or even next year - depending on the incoming data.

• It seems one of the reasons the Fed didn't taper was because they wanted to see the results of the current budget negotiations. It is possible that Congress will shut down the government (not catastrophic if it lasts a few days). However, as Bernanke noted, "failing to pay the bills" could have "very serious consequences". Both of these fiscal issues should be resolved prior to the October FOMC meeting. Note: I'm not concerned about Congress not "paying the bills" (aka Debt Ceiling), because failure to pay the bills would be the end of the Republican party - so it won't happen (several leaders in the GOP have acknowledged this). However there is some possibility of shutting down the government (probably just a threat, but not impossible).

• Inflation below target remains a key issue, and it is possible the Fed will wait on tapering if inflation doesn't move up a little.

• Bernanke hopes to comment on his future soon. I expect Fed Vice Chair Janet Yellen to be nominated by President Obama for Fed Chair next week (asking Bernanke to stay is a remote possibility).

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