November 15, 2019

Fed to Maintain Stimulus Efforts Despite Jobs Growth

“We need to see sustained improvement,” the Fed’s chairman, Ben S. Bernanke, said at a news conference on Wednesday. “One or two months doesn’t cut it. So we’re just going to have to keep providing support for the economy and see how things evolve.”

The Fed’s policy-making committee said much the same thing in a stilted statement issued just before Mr. Bernanke took questions, announcing that it would continue to hold down short-term interest rates and buy $85 billion a month in Treasuries and mortgage-backed securities.

Mr. Bernanke’s remarks suggested that the Fed would reduce its asset purchases if job growth continued at the current pace, the first time he has said that the central bank is likely to reduce the amount of monthly purchases before it stops buying entirely.

But such a change remains at least a few months away, and quite possibly longer. The Fed is wary of pulling back too soon, a mistake it has already made several times in recent years. It is waiting to assess the impact of the federal spending cuts that began this month. And Mr. Bernanke said the members of the Federal Open Market Committee, which makes policy for the Fed, “have not been able to come to an agreement” about the goals of the asset purchases or, by extension, when they should end.

Mr. Bernanke, who has made job growth the Fed’s top priority for the first time in its 100-year history, spoke about the issue in personal terms. Asked when he last had spoken to an unemployed person, he said that one of his own relatives was out of work.

“I come from a small town in South Carolina that has taken a big hit from the recession,” Mr. Bernanke said. “The last time I was there, the unemployment rate was about 15 percent. The home I was raised in had just been foreclosed upon. I have a great concern for the unemployed, both for their own sake but also because the loss of skills and the loss of labor force attachment is bad for our whole economy.”

Mr. Bernanke also may have provided some insight into his own future. Asked repeatedly about his interest in a third term as Fed chairman, Mr. Bernanke demurred several times before telling one reporter, “I’ve spoken to the president a bit but I really don’t have any information for you at this juncture.”

The Fed said last year that it planned to hold short-term interest rates near zero at least as long as the unemployment rate remained above 6.5 percent. The rate stood at 7.7 percent in February and has barely budged in half a year. Most economic forecasters do not expect the threshold to be reached before 2015.

The asset purchases are intended as a short-term measure to catalyze faster job growth; the Fed has said it will slow increasing its collection of Treasuries and mortgage bonds, a policy known as “quantitative easing,” once it is convinced that employment is increasing at a sustainable pace.

The unusual rigidity of this basic course has diminished the importance of the Fed’s regular meetings, and it has to some extent created a problem of foreshortening. The next change in policy is necessarily the major subject of discussion among Fed officials, analysts and investors. But that may make the next change seem nearer than it really is. It is quite possible that the year could pass without any significant change.

“In one line: Sustainability, sustainability, sustainability,” Ian Shepherdson, chief economist at Pantheon Macroeconomic Advisors, wrote in a note to clients. “Mr. Bernanke clearly does not want even to consider slowing Q.E. until he is convinced that any such run of strength now is a permanent shift.”

The decision, of course, does not rest with Mr. Bernanke alone. And he noted on Wednesday that there was no consensus on the policy-making committee about how much longer asset purchases should continue. “We’ve not been able to come to an agreement about what guidance we should give,” he said.

As is often the case, Fed officials are not just debating how to respond to economic circumstances. They are debating the nature of those circumstances.

The economy has grown more robustly in recent months — the committee hailed “a return to moderate economic growth following a pause late last year” — and job growth has increased since the Fed began its latest stimulus campaign in September.

But even as spending by consumers and businesses drives growth, the Fed noted that fiscal policy “has become somewhat more restrictive.”

“The committee continues to see downside risks to the economic outlook,” the statement said.

The Fed separately released economic forecasts by 19 of its senior officials showing that their expectations had actually soured slightly. They predicted growth of 2.3 percent to 2.8 percent this year, down from a forecast in December of 2.3 percent to 3 percent. The consensus forecast for 2014 also fell. Officials now expect growth of 2.9 percent to 3.4 percent in 2014, compared with a December forecast of growth from 3 percent to 3.5 percent.

Concerns about inflation remained in abeyance. Fed officials do not expect inflation above 2 percent over the next three years, well below their self-imposed ceiling of 2.5 percent inflation. At the same time, officials were modestly more optimistic about job growth. They predicted that the unemployment rate would rest between 6.7 and 7 percent at the end of 2014. In December, they predicted that the rate would sit between 6.8 and 7.3 percent at the end of 2014.

Against concerns that the pace of growth remains subpar, the Fed continues to weigh the possibility that its efforts will destabilize financial markets by encouraging excessive risk-taking.

So far, support on the committee for the stimulus remains strong. The decision to press forward was supported by 11 of the 12 voting members of the Federal Open Market Committee. Esther L. George, the president of the Federal Reserve Bank of Kansas City, recorded the only dissent, as she did in January, citing concerns about stability and future inflation.

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