July 10 - Fed Chairman Bernanke says the U.S. central bank is somewhat optimistic but will continue its highly accommodative policy for the foreseeable future- citing low inflation and restrictive fiscal policy.
Fed Chairman Ben Bernanke said it again - that highly accommodative monetary policy is needed for the foreseeable future - clarifying and re-iterating past remarks - and reminding investors that the Fed plans to continue its support of the economy until its very clearly no longer needed. SOUNDBITE: BEN BERNANKE, CHAIRMAN, U.S. FEDERAL RESERVE (ENGLISH) SAYING : "Currently we have an unemployment rate of 7.6 percent, which I think if anything overstates the health of our labor markets given participation rates and many other indicators of under employment and long term unemployment so we are not there obviously on the maximum employment part of the mandate. On price stability, inflation is now about one percent which is below our 2 percent objective. So both sides of our mandate, both the employment side and the inflation side are saying that we need to be more accommodative. Moreover, the other portion of macro economic policy, fiscal policy is actually quite restrictive. The CBO estimates that current federal fiscal policy is subtracting one and a half percentage points of growth in the U.S. economy this year so you put that all together, and I think you can only conclude that highly accommodative monetary policy for the foreseeable future is what is needed in the U.S. economy." Bernanke was speaking to economists at the National Bureau of Economic Research Conference in Boston. He says the Fed is optimistic about the economy SOUNDBITE: BEN BERNANKE, CHAIRMAN, U.S. FEDERAL RESERVE (ENGLISH) SAYING : "On the positive side, you would want to start with the housing sector, which has of course been a major drag on our economy for quite a few years and only in the last year or so has it begun to turn around and show some strength which has implications both for construction, for related industries and also for house prices which affect household balance sheets. Automobiles are also strong, so I take that as evidence as Alan Blinder said earlier that monetary policy is working because those are two of the main channels through which monetary policy affects the economy. I think a second positive factor that I would point to is the state of the American household. While there are still obviously many great difficulties households in the US have de-leveraged quite a bit and debt interest burdens are down, their wealth is up and house prices and equity prices and other prices having increased. Employment gains mean more income, and sentiment is accordingly much higher. " But there are risks he is concerned about: SOUNDBITE: BEN BERNANKE, CHAIRMAN, U.S. FEDERAL RESERVE (ENGLISH) SAYING : "It's still early to say that we have weathered the fiscal restraint. I think its very difficult to know how long the lags are between congressional decisions and actual spending and production decisions. So we are going to continue to watch and see whether growth is resilient going forward for the rest of the year, again our projections are that there will be some pickup in growth but that does depend on overcoming the remainder of the fiscal headwinds. A second point that we are stressing, and I see my good friend Jim Bullard is here, is the very low inflation rate. We are all very much committed to defending our inflation target from below as well as from above. Low inflation, I know everyone, its hard to explain to your uncle, I know, but low inflation is not good for the economy because very low inflation increases the risks of deflation which can cause an economy to stagnate. It raises the real cost of investing. And the evidence is that falling and low inflation can be very bad for an economy." While Bernanke did not say if he would leave the Fed when his term ends, he did say he hoped that part of his legacy would be improving the Fed's communication and transparency.