Bernanke: Fed Still Committed to Low Rates

Before you go, we thought you'd like these...
Federal Reserve
Susan Walsh/AP
By Jonathan Spicer

PHILADELPHIA -- The Federal Reserve is no less committed to highly accommodative policy now that is has trimmed its bond-buying stimulus, Ben Bernanke said Friday in what could be his last speech as Fed chairman.

Bernanke, who steps down as head of the U.S. central bank at month's end, gave an upbeat assessment of the U.S. economy in coming quarters. But he tempered the good news in housing, finance and fiscal policies by repeating that the overall recovery "clearly remains incomplete" in the United States.

In what came as a surprise to some, the Fed decided last month to cut its asset-purchase program, known as quantitative easing or QE, by $10 billion to $75 billion per month. It cited a stronger job market and economic growth in its landmark decision, which amounted to the beginning of the end of the largest monetary policy experiment ever.

But that decision "did not indicate any diminution of [the Fed's] commitment to maintain a highly accommodative monetary policy for as long as needed," Bernanke said at a American Economic Association forum in a snow-swept Philadelphia.

"Rather, it reflected the progress we have made toward our goal of substantial improvement in the labor market outlook that we set out when we began the current purchase program in September 2012," he said according to prepared remarks.

To recover from the deep 2007-2009 recession, %VIRTUAL-article-sponsoredlinks%the Fed has held interest rates near zero since late 2008. It also has quadrupled the size of its balance sheet to around $4 trillion through three rounds of massive bond purchases aimed at holding down longer-term borrowing costs.

The Fed's extraordinary money-printing has helped drive stocks to record highs and sparked sharp gyrations in foreign currencies, including a drop in emerging markets last year as investors anticipated an end to the easing.

Looking into the years ahead, Bernanke said the central bank has the tools -- including adjusting the rate on excess bank reserves and so-called reverse repurchase agreements, or repos -- to return to a normal policy stance without resorting to asset sales.

"It is possible, however, that some specific aspects of the Federal Reserve's operating framework will change," he said.

On the economy, Bernanke noted unemployment remains elevated at 7 percent, and said the number of long-term unemployed Americans "remains unusually high."

But "the combination of financial healing, greater balance in the housing market, less fiscal restraint, and, of course, continued monetary policy accommodation bodes well for U.S. economic growth in coming quarters," he said.

"Of course, if the experience of the past few years teaches us anything, it is that we should be cautious in our forecasts."

Last month, Bernanke, who is set to be succeeded by Fed Vice Chair Janet Yellen, said the purchases would likely be cut at a "measured" pace through much of this year if job gains continued as expected, with the program fully shuttered by late-2014.

10 PHOTOS
9 Numbers That'll Tell You How the Economy's Really Doing
See Gallery
Bernanke: Fed Still Committed to Low Rates
The gross domestic product measures the level of economic activity within a country. To figure the number, the Bureau of Economic Analysis combines the total consumption of goods and services by private individuals and businesses; the total investment in capital for producing goods and services; the total amount spent and consumed by federal, state, and local government entities; and total net exports. It's important, because it serves as the primary gauge of whether the economy is growing or not. Most economists define a recession as two or more consecutive quarters of shrinking GDP.
The CPI measures current price levels for the goods and services that Americans buy. The Bureau of Labor Statistics collects price data on a basket of different items, ranging from necessities like food, clothing and housing to more discretionary expenses like eating out and entertainment. The resulting figure is then compared to those of previous months to determine the inflation rate, which is used in a variety of ways, including cost-of-living increases for Social Security and other government benefits.
The unemployment rate measures the percentage of workers within the total labor force who don't have a job, but who have looked for work in the past four weeks, and who are available to work. Those temporarily laid off from their jobs are also included as unemployed. Yet as critical as the figure is as a measure of how many people are out of work and therefore suffering financial hardship from a lack of a paycheck, one key item to note about the unemployment rate is that the number does not reflect workers who have stopped looking for work entirely. It's therefore important to look beyond the headline numbers to see whether the overall workforce is growing or shrinking.
The trade deficit measures the difference between the value of a nation's imported and exported goods. When exports exceed imports, a country runs a trade surplus. But in the U.S., imports have exceeded exports consistently for decades. The figure is important as a measure of U.S. competitiveness in the global market, as well as the nation's dependence on foreign countries.
Each month, the Bureau of Economic Analysis measures changes in the total amount of income that the U.S. population earns, as well as the total amount they spend on goods and services. But there's a reason we've combined them on one slide: In addition to being useful statistics separately for gauging Americans' earning power and spending activity, looking at those numbers in combination gives you a sense of how much people are saving for their future.
Consumers play a vital role in powering the overall economy, and so measures of how confident they are about the economy's prospects are important in predicting its future health. The Conference Board does a survey asking consumers to give their assessment of both current and future economic conditions, with questions about business and employment conditions as well as expected future family income.
The health of the housing market is closely tied to the overall direction of the broader economy. The S&P/Case-Shiller Home Price Index, named for economists Karl Case and Robert Shiller, provides a way to measure home prices, allowing comparisons not just across time but also among different markets in cities and regions of the nation. The number is important not just to home builders and home buyers, but to the millions of people with jobs related to housing and construction.
Most economic data provides a backward-looking view of what has already happened to the economy. But the Conference Board's Leading Economic Index attempts to gauge the future. To do so, the index looks at data on employment, manufacturing, home construction, consumer sentiment, and the stock and bond markets to put together a complete picture of expected economic conditions ahead.
of
SEE ALL
BACK TO SLIDE
SHOW CAPTION +
HIDE CAPTION
Read Full Story

People are Reading