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Ben Bernanke spoke to the press following the recent decision by the FOMC. In the press conference he explained the decision, provided an overview of the economy and answered reporters’ questions.

Wrap up: All in all, Bernanke didn’t add a lot of news to the statement. Here are key notes, the live blog transcript follows:

  • Fed prefers buying only treasuries, but may need to buy Mortgage Based Securities and may provide more stimulus.
  • Fed has already been very aggressive and without stimulus, the situation could have been worse.
  • European issues a big headwind for the US economy.
  • Fed has succeeded in keeping inflation stable.
  • Hints that government should do more.
  • Yes there are signs of improvement, but the situation is still not good enough, especially in the housing sector.
All in all, currencies didn’t move too much during the press conference. The timing of the presser, when only the US market is open, is a time of low liquidity.
But when Tokyo and Europe return, there could be more upside for the dollar: the market was expecting more significant hints of more stimulus such as QE3, and didn’t get that. The Fed has already been aggressive.

Here is the live blog from the presser:

Chairman Bernanke and his colleagues made no policy changes: they left the pledge for low rates until mid 2013 and stated that “Operation Twist will continue.

18:03 GMT: Waiting for the presser to begin at 18:15 GMT.

18:09: Background- Some observers expected some more monetary easing, or at least some hints of possible QE3 at sometime in the future. This didn’t happen. On the contrary, the Fed acknowledged the improvement in the economy, as anticipated in the FOMC preview. So, the dollar reacted with a small rise against risk currencies.

18:13 EUR/USD around 1.3750 before the presser.

18:14 Press conference begins. No change in interest rates likely until mid 2013.

18:15 Bernanke repeats the decisions made earlier and his voice is relatively firm for Bernanke, although still soft.

18:17 Longer run projections: 2.4% to 2.7% for growth.

18:17 Inflation according to the Fed’s measure likely to stay around or under 2%.

18:18 Growth is expected to pick up. 2.5% to 2.9% in 2012 and higher later.

18:19 Unemployment to slide to 8.5% and to around 7% only in 2014.

18:19 Growth has improved, thanks to drop in oil prices and recovery from Japanese disaster. Pace of improvement painfully slow.

18:20 Bernanke relates to the European crisis as a strain on the economy and moves to the Japanese disaster and oil prices when talking about inflation.

18:21 Expectations are for very moderate inflation in the long run, similar to today.

18:23 Fed is discussing how to improve communications in the future. No decisions were made about this.

18:24 Questions begin: Fed gets criticism from Republicans. Bernanke says that the Fed is free from political pressure.

18:24 Bernanke says that inflation is all in all stable and that criticism about inflation is unbased.

18:25 Nominal GDP? This idea was on the cards and an “interesting discussion”, but the dual mandate will continue – no radical changes.

18:26 Regarding Occupy Wall Street – Bernanke: Inequality is going on for at least 30 years and understands the frustration about the economy. Criticism about the Fed is based on misconception.

18:27  Bernanke explains that the Fed intervened in 2008 not to help bankers but stabilize the economy for the general good.

18:28 “We are doing our part” – Bernanke criticizes politicians for inequality.

18:29 “At least mid 2013″ and markets are expecting longer. There were discussions about how to provide more clarity.

18:30 What about Mortgage Based Securities, such as in QE1. Bernanke: We would like to buy only treasuries. The housing sector is very important and one of the reasons for the economic pain. MBS buying is a viable options – EUR/USD ticks higher.

18:32 Q: Companies are hoarding cash and foreigners are investing. Bernanke: Foreigners are investing in bonds: especially China and Japan.

18:34 On MF Global: The company was approved as a Primary Dealer only in February 2011 but Fed is not regulator.

18:38 European debt crisis, Japanese disaster and severity of crisis mostly responsible for bad forecasts and revisions.

18:40  “Monetary policy has effects on the economy” – but it wasn’t so effective in the mortgage market.

18:41 Bernanke takes pride in stable prices. He sounds like Trichet!

18:42 Hypothetically, the economy would be worse without the Fed’s intervention, but the situation is bad and people have the right to be frustrated.

18:42 When will the Fed buy more MBS? Bernanke mentions tools: MBS, communications, ties interest rate decisions to developments, etc. “Those are the tools that we have”

18:43 “We will take action as appropriate” and talks about stable prices.

18:45 “Do the tools we have are efficient or not?”

18:46 Basel III is an appropriate framework. Bernanke notes the differences between the European and American rules.

18:47 Q: Why not act today given the bad conditions and low inflation? A: The Fed already did a lot of steps, including the last two meetings, “very aggressive”. We are ready to do more, but we want to see what actually happens. We did a lot and prepared for more if appropriate.

18:48 “I hope that there will be more action to complement the Fed’s actions” – clearly a signal for politicians.

18:50 European crisis has been a drag on the US economy. Consumer confidence is low.

18:51 Advice to Americans: Try to make smart decisions and budget properly. Lack of financial literacy was one of the problems. People should be smart in the US. And again, he blames Europe and says that the US is affected.

18:52 About communications, no decisions have been made. “We could provide information on where we want inflation to be”. “Charlie Evans suggested to tie it to other factors”.

18:53 Q: What can the Fed do for Europe? A: European leaders are responsible. They are the ones that need to make the decisions. The Fed can check the US financial institutions. The Fed stands ready to help the financial system and the economy.

18:55 “We can insulate the US economy from the effects”

18:56 It is early to assess Operation Twist, but it is expected to lower mortgage rates. “We are aware that low interest rates create problems for savers”

18:58 Q: Why do you think you can lower unemployment? A: Lower rates stimulate demand and spending. “We know that from a lot of experience, despite the slow movement here

18:59 There is also structural unemployment, from long term unemployment, a loss of skills. The Fed cannot help with that, but can help prevent cyclical unemployment from turning into structural one.

19:00 A: What about the improvement in the economy? A: Q4 will also likely be positive. But in the medium term projection, the outlook remains unsatisfactory in the next few years, and we will continue evaluating.

Press conference ends.

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