Tuesday, November 19, 2013

Bernanke: Communication and Monetary Policy

by Calculated Risk on 11/19/2013 07:05:00 PM

From Fed Chairman Ben Bernanke: Communication and Monetary Policy. An excellent speech worth reading. Excerpts on current situation:

In coming meetings, in evaluating the outlook for the labor market, we will continue to consider both the cumulative progress since September 2012 and the prospect for continued gains. We have seen meaningful improvement in the labor market since the latest asset purchase program was announced in September 2012. At the time, the latest reading on the unemployment rate was 8.1 percent, and both we and most private-sector economists were projecting only slow reductions in unemployment in the coming quarters. Recent reports on payroll employment had also been somewhat disappointing. However, since the program was announced, the unemployment rate has fallen 0.8 percentage point, and about 2.6 million payroll jobs have been added. Looking forward, we will of course continue to monitor the incoming data. As reflected in the latest Summary of Economic Projections and the October FOMC statement, the FOMC still expects that labor market conditions will continue to improve and that inflation will move toward the 2 percent objective over the medium term. If these views are supported by incoming information, the FOMC will likely begin to moderate the pace of purchases. However, asset purchases are not on a preset course, and the Committee's decisions about their pace will remain contingent on the Committee's economic outlook. As before, the Committee will also continue to take into account its assessment of the likely efficacy and costs of the program.

When, ultimately, asset purchases do slow, it will likely be because the economy has progressed sufficiently for the Committee to rely more heavily on its rate policies, the associated forward guidance, and its substantial continued holdings of securities to maintain progress toward maximum employment and to achieve price stability. In particular, the target for the federal funds rate is likely to remain near zero for a considerable time after the asset purchases end, perhaps well after the unemployment threshold is crossed and at least until the preponderance of the data supports the beginning of the removal of policy accommodation.

Conclusion
I began my time as Chairman with the goal of increasing the transparency of the Federal Reserve, and of monetary policy in particular. In response to a financial crisis and a deep recession, the Fed's monetary policy communications have proved far more important and have evolved in different ways than I would have envisioned eight years ago.

The economy has made significant progress since the depths of the recession. However, we are still far from where we would like to be, and, consequently, it may be some time before monetary policy returns to more normal settings. I agree with the sentiment, expressed by my colleague Janet Yellen at her testimony last week, that the surest path to a more normal approach to monetary policy is to do all we can today to promote a more robust recovery.  The FOMC remains committed to maintaining highly accommodative policies for as long as they are needed. Communication about policy is likely to remain a central element of the Federal Reserve's efforts to achieve its policy goals.
emphasis added