The Two-Way
1:36 pm
Wed June 20, 2012

Bernanke: Federal Reserve Expects 'Slow Progress' On Unemployment

Originally published on Wed June 20, 2012 2:51 pm

The Federal Reserve is ready to take further action — including the purchase of Treasury bonds — "to provide support for the economy," the Chairman of the Fed Ben Bernanke said during a press conference.

Bernanke also said that the members of the Federal Open Market Committee had "marked down" their outlooks on the economy.

Most expect there to be little change in the unemployment rate through the end of the year. The consensus, said Bernanke, is that the Fed expects "slow progress" on unemployment and most opinions are "weighted toward slower growth" on the GDP.

With that outlook — which didn't expect the unemployment rate to dip below 8 percent this year — the chairman was peppered with questions about whether the Federal Reserve's actions have been too timid.

Bernanke said that the Committee's decision to extend its "Operation Twist" until the end of the year and pump an additional $267 billion into the program, which intends to lower the interest rates on long-term loans, was a "meaningful additional step."

Bernanke said that before the Fed takes new measures, they need "more information."

He added that "non-traditional programs" — meaning programs outside of adjusting the interest rate on federal funds — "have costs."

So programs, like a third round of quantitative easing, "should not be launched lightly."

Update at 3:20 p.m. ET. Economic Projections:

As Bernanke was speaking, the Fed released the economic projections (pdf) of the Federal Reserve board members and Federal Reserve bank presidents. Here's the chart to rule all charts (click to enlarge):

We'll note that they project the unemployment rate isn't expected to change much through the end of 2013. The projections were also more pessimistic than they were in April.

Update at 3:03 p.m. ET. More Highlights:

Here are a few more highlights from Bernanke's comments:

-- On the so-called "fiscal cliff," Bernanke said that right now it is "still a bit early" for it to affect the economy. But if Congress doesn't act to keep Bush-era tax cuts from expiring and big automatic spending cuts, the "uncertainty will have an economic effect."

"Markets don't like uncertainty," Bernanke said.

-- Bernanke gave a list of "head winds" facing the economy. Among them:

  • The European situation is slowing U.S. growth. Most of Europe is likely in a recession and that affects U.S. exports.
  • Europe has also concerned the markets.
  • Slowing "global economic growth" has affected U.S. exports.
  • Domestically, the housing market is still hurting.
  • Bernanke said he wasn't criticizing austerity measures put in place by federal, state and local governments but the "contractions are affecting the pace of growth."

Update at 2:25 p.m. ET. Lowered Outlook:

In his press conference, Bernanke said that most members of the Federal Reserve have "marked down" their outlooks of the economy.

Most expect there to be little change in the unemployment rate through the end of the year. The consensus, said Bernanke, is that the Fed expects "slow progress" on unemployment and most opinions are "weighted toward slower growth" on the GDP.

The AP reports on the published forecast:

"In an updated forecast, the Fed says it expects the economy will grow no faster than 2.4 percent this year. That's much slower than the Fed's April forecast, which projected growth as fast as 2.9 percent. And it is not much better than the 1.9 percent annual pace from the first three months of the year.

"The Fed also predicts the unemployment rate will fall no lower than 8 percent by the end of the year. It currently stands at 8.2 percent. In April, the Fed said the rate could be as low as 7.8 percent at year's end.

"The central bank is forecasting lower inflation. At its highest, it expects inflation to rise 1.7 percent this year, well below its 2 percent target. The decline is largely because of a steep drop in gas prices."

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