After the Fed announced QE4 and new guidance for keeping low rates, Ben Bernanke will meet the press and provide some explanations.
Follow the live blog of Bernanke’s presser.
Update: Gold Could Go Much Higher – Elliott Wave Analysis
19:00 Fed publishes economic forecasts – unemployment projections drop — more details coming.
19:03 GMT Press conference begins at 19:15 – All times are GMT.
19:05 EUR/USD is trading at 1.3085, USD/JPY at 83.17. You can watch the press conference here.
19:09 More details about Fed forecasts: unemployment rate in 2013: 7.4% to 7.7%, compared with 7.6% to 7.9%. The current unemployment rate is 7.7%.
19:10 GDP growth targets widened from 2.5-3% to 2.3-3%. PCE Inflation widened from 1.6-2% to 1.3-2%. Core PCE lowered from 1.7-2% to 1.6-1.9%.
19:13 Was the fiscal cliff taken into account? This will probably be asked by the reporters.
19:15 Press conference begins.
19:15 Bernanke says unemployment remains high, and that many have a part time job or have lost faith. There is a huge waste.
19:16 Inflation remains tame. Highly accomodative policy continues.
19:17 Committee seeks lower rates in its QE programs.
19:17 Bernanke says that there are no dates.
19:17 QE to continue until situation improves. This includes the unemployment rate, labor force participation that are all taken into account.
19:18 Bond buying will be flexible.
19:19 Qualitative guidance is better at this time. Bernanke quotes the guidance from the statement.
19:20 Accommodation will continue as long as needed. This makes policy more transparent.
19:22 Bernanke reiterates commitment to Fed goals. “Monetary policy not on auto-pilot”.
19:23 Fed could leave rates low even if unemployment rate falls under 6.5%
19:24 Bernanke lays out all the conditions for moving the rates: for example: drop in unemployment has to be sustainable, inflation trend and not current inflation will be looked at.
19:25 Also other employment figures will be examined.
19:26 We will not derail the economic recovery.
19:27 Questions begin: asset purchases are a less understood tool…
19:28 Rate increases are well understood.
19:29 The change in guidance doesn’t change the expectations. Going forward, we will “drop the date”.
19:30 Tying the policy to goals will help the public and financial markets.
19:30 “We had a substantial discussion” about changing the guidance.
19:31 Bernanke reiterates transparency cause in guidance change.
19:31 Inflation expectations are low. We are trying to clarify the connection between policy and targets.
19:32 The fiscal cliff is having effects on the economy.
19:34 We are assuming that the fiscal cliff will be resolved.
19:35 Q: Is this an additional stimulus? No, this is a continuation of what we said in September.
19:36 QE4: We have announced an initial amount, and we are ready to change that.
19:37 Policy is prone to changes…
19:38 Fiscal cliff will undoubtedly have adverse on the economy, and we can not offset that.
19:39 Regarding the terminology, Bernanke doesn’t regret coining the term, as this is a big issue. He also mentions low business sentiment, and connects it to the cliff.
19:40 Also a short term drop off the cliff would be bad for the economy.
19:42 About economic projections – long term forecasts give us some time.
19:42 No rapid increase in the economy – we will take a balanced approach.
19:43 Some increase in our balance sheet is consistent with our policy. Nothing will change the “time to exit”.
19:44 I’m hoping that Congress will do the right thing on the fiscal cliff.
19:45 Congress also needs to make a framework for a long term solution.
19:46 The inflation limit is for “protection”. The nubmers were based on the Fed’s models.
19:47 Emotional question: what happens to regular people if the US goes off the cliff? What should people do?
19:48 Bernanke: the part where I come from has been “economically challenged”. We are trying to help people everywhere.
19:49 Bernanke mentions foreclosure rate in addition to the unemployment rate.
19:50 Important that politicians come to an agreement.
19:52 Main reason is to give markets and people more transparency about policy.
19:52 Is the Fed policy following a path for raising the rates only in 2016? Bernanke repeats key points in the statement.
19:54 We prefer having credible forecasts, and that’s why we keep policy transparent.
19:55 I think we can manage the credibility issue. The best thing is the collective wisdom of the Committee.
19:56 We expressed our dissatisfaction of the labor market in September.
19:58 Is the message: we are doing what we can? Bernanke refers to different views on the committee.
20:00 What about more stimulus? Bernanke refuses to intervene in politics.
20:01 Bernanke hints that he wants more stimulus, given a long term path for the longer term debt.
20:02 We missed growth forecasts and underestimated the recession.
20:04 Economic forecasting beyond a few quarters is hard…
20:05 The central bank cannot control unemployment in the long run.
20:06 The long term unemployment rate is made by many other things and not monetary policy.
20:07 Normal unemployment rate is between 5% and 6%.
20:10 Bernanke discusses transparency. In the meantime, EUR/USD is sliding under 1.3070.
20:12: Q: Can the Fed run out of ammunition? A: We can always innovate more. We should be more proactive now, when we have the ability.
20:14 Question about the Volcker rule. A lot of work to do…
20:15 Political question from Fox News about future work as Chairman. No real answer from Bernanke.
20:17 Bernanke discusses changes in the participation rate – discouraged workers.
20:20 “I hope that markets won’t have to tank”.
19:21 Bernanke is analyzing the “complacent” market reaction to the fiscal cliff.
20:23 Question about the Fed credibility, and hint that the Fed is financing the government and debasing the dollar.
20:25 “The credibility has been good”.
20:26 AS a part of GDP, QE is not that big, and accommodation is necessary, not meant for fiscal policy.
20:27 EUR/USD continues falling, to 1.3063 now.
20:27 Q:Is the MBS effort not passed on to consumers? A: Our analysis suggests it takes time. We don’t expect a full passage.
20:28 Since September, mortgage rates have been falling. Other things are happening in the economy.
20:30 Most of the declines find their way to mortgage customers.
20:31 Press conference ends.
Background
The Fed will now buy $40 billion worth of MBS (QE3) each month, and $45 billion in treasuries (QE4). Operation Twist has ended.
The Fed also set guidance for changing the interest rate: an unemployment rate of 6.5% as long as inflation expectations remain under 2.5% in the next one or two years. The details are a big vague.
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