The first take on the Fed’s rate decision and economic outlook is available in my piece, Fed holds steady, tweaks outlook on economy. But in conjunction with Ben Bernanke’s first press conference, the Fed released its outlook on the economy, lifting its view on inflation and cutting the outlook on GDP growth.
Below is a look at economic projections released today by the Federal Reserve for GDP, unemployment, headline inflation and core inflation.
(click to enlarge)
Despite its latest take on inflation, the Fed still believes the impact on inflation will be “transitory,” as wages, the biggest input cost to most businesses, have been stable, and there is still some slack in the economy.
Q&A
QE2 - no tapering off; the Fed will just let the program end in June, and he doesn’t expect much of a disruption in the financial markets since the central bank’s intentions have been well telegraphed.
Because inflation has picked up somewhat and inflation expectations are a little higher, trade-offs for a third round of quantitative easing are less attractive at this point. Translation: QE3 looks unlikely amid the spike in gasoline prices.
Other sound bites from Bernanke in his press conference:
His interpretation of “extended period” in the statement goes out two meetings, but it is also used simply because uncertainty is a part of every economic equation.
The Fed cut its GDP forecast based on an expected weak Q1 GDP number, which it also believes will be transitory.
The Fed is carefully watching gasoline prices, but rising oil demand has been mostly confined to emerging markets and U.S. demand is down. Consequently, the Fed has little control over the price of oil.
Bernanke supports a stable dollar, and the recent decline is mostly due to an unwinding of safe-haven buys. Still, he didn't talk much on the importance of a strong dollar, suggesting that a stable and strong dollar is not high on the Fed's list of priorities.
Looking ahead, the Fed plans to maintain the level of securities on its balance sheet and re-invest maturing securities, something I alluded to yesterday when I previewed today’s report.
Bernanke said that not re-investing the proceeds of maturing securities would shrink the Fed’s balance sheet and would be correctly construed as tightening.
Asked whether the Fed's monetary policy might provide the future tinder for inflation, Bernanke believes the Fed will tighten at the right time and not stoke unwanted inflationary pressures by easing for too long a period.
On the deficit, Bernanke said addressing the spending and revenue gap must be a top priority.
Asked if the public is expecting too much from the Fed given that recessions sparked by a financial crisis are slow, Bernanke looked at past policy mistakes, including a slow recapitalization of banks. And he focused on factors that are specific to this recovery, including housing and high gasoline prices.
He sympathized with the public's impatience but does expect growth to gradually accelerate though he did not provide specific remedies for accomplishing his goals in the short term.
0 comments:
Post a Comment