“It’s not clear that we can get substantial improvements in payrolls without some additional inflation risk,” Bernanke said at his first press conference following a meeting of the Federal Open Market Committee. “Ultimately, if -- if inflation persists or if inflation expectations begin to move, then there’s no substitute for action,” Bernanke said. “We would have to respond.”
Stocks extended gains, the dollar weakened and Treasuries fell after Bernanke reinforced the view of the FOMC, which released its policy statement today, that borrowing costs are likely to stay low for “an extended period.” The panel agreed to finish $600 billion of Treasury purchases in June and said surging commodity prices will probably have a transitory effect on inflation.
Bernanke said the Fed would initially hold its balance sheet steady after completing the purchases. “We are going to continue to reinvest maturing securities, both Treasuries and MBS, so the amount of securities that we hold will remain” approximately constant, he said, referring to mortgage-backed securities. “The amount of monetary policy easing should remain constant going forward from June.”
Stocks, Dollar
The Standard & Poor’s 500 Index added 0.6 percent to 1,355.66 in New York after falling as much as 0.2 percent before the Fed’s statement. The dollar weakened to $1.4788 per euro, falling for a seventh-straight day in its longest slump in two years. Gold for June delivery advanced as much as 1.8 percent to a record $1,530.70 an ounce. Ten-year Treasury yields rose five basis points to 3.36 percent.
“Bernanke and others are providing clear signals that no additional easing is coming, but that they’re not prepared to start tightening anytime soon,” said Paul Ballew, a former Fed economist and senior vice president at Nationwide Mutual Insurance Co. in Columbus, Ohio.
The Fed left its benchmark interest rate in a range of zero to 0.25 percent, where it’s been since December 2008.
Bernanke said that when the Fed makes the “extended period” pledge it means there will likely be no tightening of policy “for a couple of meetings, probably, before action.”
“Unfortunately, the reason we use this vaguer terminology is that we don’t know with certainty how quickly response will be required,” he said.
Record Stimulus
When the Fed begins unwinding its record monetary stimulus, “it’s very likely that an early step would be to stop reinvesting all or part of the securities which are maturing,” he said. “That step, though a relatively modest step, does constitute a policy tightening,” Bernanke said.
Policy makers, in a release after the statement, lowered their forecasts for economic growth this year and raised estimates for a key gauge of inflation that excludes volatile food and energy prices. The projections of governors and regional bank presidents were released three weeks sooner than prior practice.
The range of estimates for growth this year was cut to 3.1 percent to 3.3 percent, from 3.4 percent to 3.9 percent in January. Estimates for the personal consumption expenditures index, minus food and energy, ranged from 1.3 percent to 1.6 percent, up from a prior range of 1 percent to 1.3 percent.
Unemployment Forecasts
Fed officials’ central tendency forecast for the average unemployment rate in the final three months of 2011 fell to 8.4 percent to 8.7 percent versus 8.8 percent to 9.0 percent in January. Their estimate for unemployment at the end of 2012 was in a range of 7.6 percent to 7.9 percent versus 7.6 percent to 8.1 percent in January.
“The labor market is improving gradually,” Bernanke said at the press conference. “The longer it goes on, the more confident we are.”
“We are digging ourselves out of a deep hole,” Bernanke said, referring to the jobs lost during the recession.
The Fed’s commitment to record stimulus contrasts with the interest-rate increase this month by the European Central Bank and tightening this year by the biggest emerging-market economies, including China, Brazil and India, which face faster inflation.
First Briefings
Bernanke became the first Fed chairman to conduct a press briefing following an FOMC decision when he took the microphone at the Fed’s headquarters. His counterparts in Europe,Japan, the U.K. and Canada already hold regular news conferences.
The press conference, broadcast on television and the central bank’s website, marks one of Bernanke’s biggest efforts to improve the Fed’s connections with the public and demystify the institution, which as recently as 1993 didn’t announce its monetary-policy decisions. Bernanke said in February that the central bank was weighing benefits of more transparency against the risk that his remarks would trigger unwanted fluctuations in financial markets.
Increases in employment and inflation are helping drive calls to tighten credit. Payrolls have increased by an average 149,000 a month for the past six months, while the unemployment rate has dropped by 1 percentage point since November to 8.8 percent, a two-year low.
Beverage Prices
Food and beverage prices rose in the first quarter by the most since 2008, based on the Labor Department’s Consumer Price Index, while the cost of regular-unleaded gasoline has increased by 26 percent this year to $3.88 a gallon as of yesterday.
The increases helped slow U.S. growth to a 2 percent pace in the first quarter, according to the median estimate of analysts surveyed by Bloomberg News, from 3.1 percent in the prior period. The government releases preliminary figures tomorrow.
Bernanke said policy makers believe the reasons behind a slowdown during the first quarter do not appear to be long- lasting. “I would say roughly most of the slowdown in the first quarter is viewed by most on the committee as transitory,” he said.
The Commerce Department’s personal consumption expenditures price index, excluding food and energy, rose 0.9 percent in February from a year earlier. Policy makers have a long-run goal for total inflation of about 1.6 percent to 2 percent annually.
Economists say the Fed is at least a few months away from starting to reverse the stimulus. Most of the 44 economists surveyed by Bloomberg News from April 20 to April 25 said the central bank this year will probably halt its policy of replacing maturing mortgage debt with Treasuries. The majority of respondents also said the Fed will announce a plan next year of selling mortgage bonds and Treasuries among its assets.
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