Bernanke Addresses the 'Uneven Improvement in Labor Market Conditions'

Fed chairman announces decision to continue quantitative easing to help boost the American economy.
26:05 | 09/18/13

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Transcript for Bernanke Addresses the 'Uneven Improvement in Labor Market Conditions'
This is a special report from ABC news. Look what I'm Dan -- New -- -- ABC news digital special report a surprise move from the Fed today for many months investors have been wondering when the Fed will end its bond -- stimulus program and today we're finding out. It will continue we're fed chair Ben Bernanke is a podium now let's listen in. The rationales for our decision in a moment. Economic growth has generally been proceeding at a moderate pace with continued. Albeit somewhat uneven improvement in labor market conditions. Of course to say that the job market has improved does not imply that current conditions are satisfactory. Notably -- seven point 3% the unemployment rate remains well above acceptable levels. Long term unemployment and underemployment remain high and we have seen ongoing declines. In labor force participation. Which likely reflects discouragement on the part of many potential workers. As well as longer term influences such as the aging of the population. In the committee's assessment the downside risks to growth and diminished on net over the past year. Reflecting among other factors somewhat better economic and financial conditions in Europe. And increased confidence on the part of households and firms in the staying power of the US recovery. However the tightening of financial conditions served in recent months if sustained. Could slow the pace of improvement in the economy and labor market. In addition federal fiscal policy continues to be -- important restraint on growth and a source of downside risk. Apart for some fluctuations. Due primarily to changes in -- prices inflation has continue to run below. The committee's 2% longer term objective. The committee recognized inflation persistently below its objective could post. To economic performance. And we will continue to monitor inflation developments closely. However the unwinding -- some transitory factors has led to moderately higher inflation recently as expected and it's what expectations well anchored the committee anticipates. Inflation will gradual move back -- percent. In conjunction this meeting the seventeen participants -- policy discussions five board members. And twelve reserve bank president's submitted individual economic projections. As always each participants projections are conditioned and his or her own view of appropriate monetary policy. Also at this meeting we extended to horizon of our projections through -- sixteen. Generally the projections of individual participants show that they continue to expect moderate economic growth picking up over time. As well as gradual progress towards levels of unemployment and inflation. Consistent with a Federal Reserve statutory mandate to Foster maximum employment and price stability. More specifically participants projections for economic growth have a central Tennessee of 2.0. To 2.3 percent for -- thirteen. Rising to two point nine to three point 1% in 2014 and 2.5 to 3.3 percent in -- sixteen. For the unemployment rate the central -- -- projections for the fourth quarter of each year. This seven point one system point 3% for Tony thirteen declining -- six point four to six point 8% in 2014. And by 2016. To five point four to five point 9%. About the longer run normal level for the unemployment rate. Most participants see inflation gradually increasing from its current low level toward the committee's longer an objective of 2%. The central Tennessee and their projections for inflation is one point 121 point 2% for this year one point 31 point 8%. For 2014. And one point seven to 2.0 percent in 2016. With unemployment still elevated and inflation projected to run below the committee saw -- -- objective the committee's continuing. It's highly accommodative policies. As you know in normal times the committee eases monetary policy battle over -- target for the short term policy interest rates the federal funds rate. However the target range for the federal funds rate currently at zero to 14%. Cannot be lowered meaningfully further. Accordingly the committee has been providing policy -- support to the economy through two complementary methods. By purchasing and holding treasury securities and agency mortgage backed securities. And by communicating the committee's plans for saying the federal funds rate target over the medium term. I'll discuss these tools in turn beginning -- our program of asset purchases. -- September 2012 the FOMC initiated a program are purchasing forty billion dollars for months in agency mortgage backed securities. In addition to the 45 billion dollars for months in the longer term treasury securities that we were already acquiring as part of our maturity extension program. We stated that subject to our ongoing assessment of the efficacy and cost of the program. Purchases would continue until we saw substantial improvement in the outlook for the labor market in a context of price stability. In December Tony twelve we announced that we would continue to purchase 45 billion dollars for months and longer term treasuries. After maturity extension program ended later that month. Thus our total purchase offices of longer term securities. Were maintained at 85 billion dollars for months. In addition to the reinvestment or rolling over a maturing securities on the balance sheet. The committee agreed today to continue asset purchases at that rate. Subject to the same conditions that we laid out a year ago. Because the committee tied its asset purchases to the outlook for the labor market it's important to assess how their outlook has evolved. As I noted earlier conditions in the job market day are still far from what all of us would like to see. Nevertheless meaningful progress has been made in the year since we announced the asset purchase program. For example the unemployment rate has fallen from eight point 1%. At the time of our announcement to seven point 3% today. And about 2.3 million private sector jobs have been created over the same period. Over the past twelve months aggregate hours of work -- up by about 2.4 percent. -- new claims for unemployment insurance have fallen by about 50000. And survey suggests that households receive jobs as more readily available. Importantly these gains were achieved despite substantial fiscal headwinds which -- -- slowing economic growth this year by a percentage point or more. -- reducing employment by hundreds of thousands of jobs. Not all labor market developments over the past you were positive however notably to labor force participation rate fell by about zero point three percentage points. And real wages remained about flat. In light of this cumulative progress the FOMC concluded that urgent meeting that the criterion of substantial improvement in the outlook for the labor market. Might well be met over the subsequent year or so. Accordingly the committee sought to provide more guidance and how the pace of purchases might be just -- over time. The committee anticipated in June that subject to certain conditions in might be appropriate. To begin to moderate pace of purchases later this year. Continuing to reduce the pace of purchases in measured steps to the first half of next year and ending purchases around -- -- 2014. However we also make clear at that time. That adjustments to the pace of purchases would depend importantly. On the evolution of the economic outlook. In particular and receipt of evidence supporting the committee's expectation. That gains in the labor market will be sustained. And an inflation is moving back towards -- 2% objective over time. At the meeting concluded earlier today the sense of the committee was at the broad contours of the medium term economic outlook. Including economic growth sufficient to support ongoing gains in the labor market and inflation moving towards his objective. For close to the views it held in June. But in evaluating whether a modest reduction in the face of asset purchases would be appropriate at this meeting however. The committee concluded that the economic data do not yet provide sufficient confirmation. Of its baseline outlook to warrant such a reduction. Moreover the committee has some concern that the rapid tightening of financial conditions in recent months could have the effect of slowing growth as -- noted earlier. The concern it would be exacerbated if conditions tighten further. Finally the extent of the effects of restrictive fiscal policies remain unclear. An upcoming fiscal debates may involve additional risks to financial markets and to the broader economy. In light of these uncertainties that committee decided to await more evidence. That the recoveries progress will be sustained before adjusting the pace of asset purchases. The committee will of course continue to monitor economic and financial developments closely. As noted in today's statement. In judging -- to moderate the pace of asset purchases. The committee will let -- coming meetings assess whether incoming information. Continues to support the committee's expectation. Of ongoing improvement in labor market conditions. And inflation moving back towards -- -- -- an objective. However as we have said and as today's decision underscores. Asset purchases are not on a preset course. The committee's decisions about their case were main contingent on the economic outlook. -- on the -- -- committee's ongoing assessment of the likely efficacy and cost of the program. Then we turn out -- the FOMC's forward guidance regarding the federal funds rate. The committee again reaffirmed its expectations that the current exceptionally low range for the funds rate. Will be appropriate at least as long as the unemployment rate remains about six and a half percent. So long as inflation and inflation expectations remain well behaved as described in -- statement. As I've noted frequently economic conditions we have set out after -- any future rate increase. Our thresholds. Not triggers. For example a decline in the unemployment rate to six and a half percent would not lead automatically to increase in the federal funds rate target. But would instead indicate only that -- become appropriate for the committee to consider whether the broader economic outlook justified such an increase. The committee would be unlikely to increase rates if inflation were projected to remain below are 2% objective for some time for example. And in making its assessment the committee would also take into account additional measures -- labor market conditions such as job gains. Thus the first increases in short term rates might not occur until the unemployment rate is considerably below six and a half percent. The projections of the path of the federal funds rate by individual committee participants are generally consistent with this guidance. Though the central tendency of the projected unemployment rate for the fourth quarter of next year encompasses six and a half percent. Twelve of the 17% participants expect a first rate increase to take place in -- fifteen. And two expected to occur occur in 2016. Most participants also see the funds rate target rising only very slowly after the process of removing policy accommodation begins. The media projected funds rate -- the end of Tony fifteen is 1%. And notably although the central tendencies of projections from both inflation and the unemployment rate in 2016. Are close to the longer run normal values for those variables. The median projection for the federal funds rate at the end of 2016 is 2%. Well below the longer run normal value for the federal funds rate 4% or so projected by most participants. Committee participants generally believe that because the headwinds to recovery will abate only gradually. Achieving and maintaining maximum employment and price stability. Will require a patient policy approach that involves keeping the target for the federal funds rate. Below its longer run normal value for some time. -- me close by noting that although the FOMC is employing two instruments of policy. Asset purchases and for guidance about short term interest rates the overall stance of monetary policy is what matters for growth jobs and inflation. Our program of asset purchases from the set up a year ago to help achieve a substantial improvement in the outlook for the labor market in the context of price stability. Relative to conditions when the program was initiated. And we have made progress toward meeting that criterion. However even after asset purchases -- wound down. Which we will do in a manner that is both deliberate and dependent on the incoming economic data. The Federal Reserve's rates guidance and its ongoing holdings of securities. Will ensure that monetary policy remains highly accommodative. Consistent with an aggressive pursuit of -- mandated objectives of maximum employment and price stability. Thank you -- let's take questions. Francis -- -- -- from Reuters you -- meaningful progress on the labor market. Both on the unemployment front and in terms of payroll payroll growth. But much of the decline in the unemployment rate has been do -- you -- to the decline in participation so my question to you is. And also on the payroll -- some people would argue that while there has been growth it hasn't been strong enough to keep up with population growth and make up the gap that we have from the recession so. How high do you think the jobless rate would be if -- were not for the decline in participation -- heard estimates as high as ten to 11%. And and could you put the labor market in that context. Certainly. So. I think there is a cyclical component to participation. And in that respect. The unemployment rate understates. -- the amount of sort of true unemployment if you will in the economy. But on the other hand there's also. A downward trend in participation in our economy. Which is a rising from factories have been going on for some time including an aging population. Lower participation by prime age males fewer women in the labor force other factors which are really related to this -- this recession. Over the last year the unemployment rate has dropped by a -- of a percentage point. The participation rate has dropped by three tenths of a percentage point which is pretty close to the trends so in other words I think it would be fair to say that most. Of the improvement the unemployment rate not all the most evident last year is due to job creation rather than -- participation. I would also note that if you look at the the broader measures of unemployment that the -- -- publishes including. Including part time work including -- workers and so on. You'll see -- those rates have fallen about the same amount as the overall standards. Civilian unemployment rate so. I think that there has been progress and it's obscure to some extent by the downward trend of participation. But I also would agree with you. That the unemployment rate is. While perhaps the best single indicator. For the state labor market is not by itself. Fully represented an indicator. Being -- the New York Times. To what extent do you regard yourself as responsible for the tightening in financial conditions that you noted was it was a mistake to talk about tapering in the way -- -- did in June. And do you stand by your guidance that it will be appropriate do you still expect that it will be appropriate to doubt that an asset purchases by the end of this here. So it gets the first part of your question. I think there's no alternative in -- monetary policy but to communicate as clearly as possible and that's what we tried to do. As of June. We had made meaningful progress in labor market conditions. And the committee. Thought that was the time to begin talking about how. The eventual. Wind down -- the program would would take place and how would be tied to the evolution of economic hurdles. And a particular I talked about a pro a proposed. A strategy that would take about a year. For the total wind down to take place and which in turn was also could a fully contingent on the ratification so to speak of our outlook which included continued improvements in in the labor market so. All of that was very consistent with what we said we when we begin the program that would our goal was. To achieve. A substantial improving the outlook for the labor market. And we need to communicate how that was -- be. Put into practice failing to communicate that information. Would have. Risked creating a large divergence between market expectations public expectations. And with the committee. Intentions were and that could lead to much much more serious problems down the road so -- to communication. It was very important. The general framework that -- part of your question the general framework -- which we're operating is still the same we have a three part. Baseline projection which involves. Increasing growth that speaking up over time as fiscal drag is reduced. -- continuing gains in labor market and inflation moving back towards objective. We are looking to see in the coming meetings will be looking to see if that -- confirm that basic outlook. If it does will. Take a first step at some point possibly later this year. And then continue so long as the data are consistently that continued progress -- so that basic structure. Is still in place but what I want to emphasize is really two things. -- As I said net asset purchases are not at a preset course they are conditional on the data they've always been conditional on the data. And secondly that. Even as we move from asset purchases to rate policy is the principal tool of monetary policy. Is our intent to maintain a highly accommodative policy and provide. The support necessary for our economy to recover and provide. Jobs for our citizens. -- continue to listen in to this news conference is going on with fed chief Ben Bernanke answer some questions there to listen for any other. Headlines -- highlights -- might be coming out of that but meantime I want to bring in ABC's chief business and economics correspondent Rebecca Jarvis. To talk about what we just heard Rebecca essentially the bottom line is. The -- saying that that 85 billion dollar a month bond buying program will continue and the markets clearly reacting to that. Yet the stock market hitting all time highs on that news the S&P 500 and the Dow. Both surging meantime you have the dollar and interest rate. -- interest rates the sinking on the news most people we're expecting coming in to today's announcement. That the information we would be getting from the that is that they be pulling back on the bond buying program maybe ten. Fifteen billion dollars it's one of the reasons that we have been seeing for example mortgage rates climbing a lot of people. Probably have noticed that the thirty year fixed rate mortgage. Back in May you could probably get a thirty year fixed rate mortgage for about 3.4 percent. Now it's going to cost you something like four point 6% and that is because the Fed has been talking about. Pulling back on the stimulus program which in turn has hit. Real interest rates and has turned real interest rates a little bit higher so. It's some relief for people who are thinking while I'd like to -- and purchase a home it might mean that a mortgage is a little bit less expensive. -- -- what are the things let's talk -- -- the fact that that Bernanke at the top of it is sent essentially address some of the conditions and concerns and mean that the open market committee had discussed. The strengthening confidence in Europe the housing recovery but it still would seem to really be the bulk of the remarks that Bernanke -- today was a bond the unemployment rate at seven point 3%. And in fact that first question that he took was about. Whether or not that's due to the fact that that drop whether or not -- -- the fact of participation people just simply not looking for work or it's been on job growth. Right and he's saying that essentially where the unemployment rate is. That it would be there regardless. And naturally speaking regardless of whether people were giving up looking for their work. -- because they just gave up on looking for jobs or if they were retiring or naturally. Leaving the workforce but I think -- key hearing you bring it up is that there. Police are focused on unemployment that's where this program started that's why they decided to go down this in -- it's an untested -- And it's. A very expensive path of the reason that the Federal Reserve decided to go down this -- is because they were laser focused on unemployment and he mentioned two things. During the speech and during his comments that could -- rail in his opinion in the opinion of the Federal Reserve some of the recovery and some of the recovery that we've seen in jobs and its first off the fiscal policy keep in mind that we -- two weeks away really at this point from that October 1. First time that we could see a government shutdown. We are just a matter of a couple of weeks away from. The congress having to come together and make decisions about our debt ceiling about our budgets. And about our economy going forward and it's that fiscal drag on the economy. Around what Washington DC has been doing bad DC dysfunction. That has -- a recurrent theme in Ben Bernanke's remarks he said time and time again. More in this state of recovery but Washington DC has to do its part as well as the Federal Reserve. To bring the economy back to where it should be and he said consistently they could easily. The other part of his remarks. Are that he was concerned. About mortgages that the Federal Reserve was concerned that mortgage rates. Have climbed as I mentioned so dramatically in a short span of time -- up almost a full percent for a thirty year fixed rate mortgage now. That that could also harm the economy because remember how did we get into this mess in the first place. The housing market began to collapse when the housing market collapsed people -- interested in buying the construction market dampened. A bunch of manufacturing dampened as a result. Well now is we're seeing the housing market gradually begin to recover. The -- service saying. We're concerned that if mortgage rates become so high that all of a sudden people will lose interest in buying homes. And then this fragile recovery that we're seeing take place in the housing market. Will. Lose steam. On -- essentially what's been done over the past year. I wanna dig a little bit deeper about some of the remarks that he and made ended as as they sort of dove -- onto a question that he took. Off from one of the correspondents there that essentially asked him how responsible does he feel. About the market reactions when he first made those concerns public -- in June. When the open market committee was discussing the possibility of potentially. Tapering back on this bond buying program. And he essentially said that in fact that there are no benchmarks. That the market committee is waiting to see. Point -- specifically. That if unemployment reached six and a half percent that wouldn't necessarily be -- necessarily be a trigger -- that a tapering would take place. In making that kind of language has -- somewhat distanced himself from those earlier comments or just clarifying. What he initially meant to say three months ago. Yeah I want to clarify this point because I I think what you're referring to. Is the unemployment rate at six and a half percent has -- the -- Montrae of the Federal Reserve has -- that. Unemployment has -- -- six and a half percent for us to even consider. Increasing interest rates and increasing interest rates and this that stimulus. Programmer two different things but as far -- increasing interest rates goes and he did clarify this point he said. Most of the Fed's projections look like. By the end of 2014. That we're going to see unemployment in this country around six and a half percent. But he then added that most of the -- members. Aren't on board with increasing interest rates and -- at least 2015. Which means that even though the -- has been saying that interest rates are and an increase in interest rates is tied. To the unemployment rate being a low six and a half percent. That they -- actually not going to just say okay six and a half percent well now we're gonna start hiking interest rates they're going to say. At least by today's word they're going to say in the future. Well if interest rates are rather if the unemployment rate -- six and a half percent then we'll start to consider. Raising interest rates so again just for people if you about lost and that the main thing is interest rates at the fat it. The Fed is saying we're not even going to think about hiking until -- fifteen. Good clarification and I greatly appreciate that before we let you go want to take a look at how the Dow is responding. The Dow is up about a 153 points almost up 1% at 151683. ABC's chief business and economic affairs correspondent Rebecca Jarvis Rebecca thank you so much we -- -- -- appreciate that. A complete report on abcnews.com. For now on Dan that's our New York. With the CBC news digital special report. This has been a special report from me.

This transcript has been automatically generated and may not be 100% accurate.

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