U.S. Federal Reserve chairman Ben Bernanke said it would be “reckless” to deploy further stimulus measures now, an assertion that shows economic conditions would have to shift decisively to move the U.S. central bank off its present course.
Mr. Bernanke spoke Wednesday after a two-day meeting of the Fed’s policy committee, which opted to stick with its conditional pledge to leave interest rates “exceptionally” low until at least the end of 2014.
The combination of Mr. Bernanke’s comments and the policy committee’s comfort with its current stance diminishes the likelihood of a third asset-purchase program, although the European debt crisis and worries about the U.S. budget deficit will keep the option on the table.
Mr. Bernanke and the 16 other members of the Federal Open Market Committee revised their consensus forecast for economic growth in 2012 slightly higher, predicting the economy could expand as much as 2.9 per cent. The FOMC also posted a marginally better outlook for the labour market, saying the unemployment rate could drop to between 7.8 per cent and 8 per cent, compared with a January estimate for a jobless rate this year of between 8.2 per cent and 8.5 per cent.
Yet the revised unemployment forecast still is well above the jobless rate the Fed considers to be consistent with its mandate to achieve maximum employment. With inflation in check, some critics insist the Fed should be doing even more to boost economic growth and create jobs. There are more than 5 million fewer jobs today than at the pre-crisis peak.
Mr. Bernanke aggressively pushed back against this argument at a press conference. He called the slow improvement of the labour market the aspect that troubles him most about an economic recovery that has gained only modest momentum in the three years since the recession ended. But he asserted that further stimulus measures at this stage would do little, if anything, to jolt the economy.
Creating more money to purchase financial assets – the most potent tool the Fed has in its arsenal, with its benchmark interest rate near zero – risks unmooring inflation expectations, Mr. Bernanke said. It’s taken the Fed three decades to gain the public’s confidence that it will keep inflation low, an “asset” that Mr. Bernanke said would not be squandered.
“We are doing a great deal. Policy is extraordinarily accommodative,” Mr. Bernanke said. “The view of the committee is that would be very reckless” to ease policy at this time, Mr. Bernanke added. “We the Federal Reserve have spent 30 years building up credibility for low and stable inflation … To risk that asset for what I think would be quite tentative and perhaps doubtful gains on the real side would be, I think, an unwise thing to do.”
Explaining the Fed’s policy stance has become one of Mr. Bernanke’s most difficult tasks.
For only the second time, the Fed released the interest-rate projections of the 17 members of the policy committee. That information shows that 13 officials predict that the Fed’s benchmark rate will rise in 2014. Half the committee projects a Fed funds rate of 2 per cent or higher. That appears inconsistent with the Fed’s conditional promise to leave the benchmark rate near its current setting until the end of the 2014, if not longer.
Mr. Bernanke cautioned reporters against reading too much into the forecasts, which he described as “input” for the policy discussions that is prepared in advance of FOMC meetings. He said the public should pay closest attention to the qualitative assessment of economic conditions in FOMC statements, which seek to convey the consensus of the 10 committee members that are entitled to vote on policy at any given time.
“The committee is quite comfortable with the consensus we have reported today,” Mr. Bernanke said.