Bernanke bids farewell with Fed taper, reduces bond buying to $75bn/month

Washington: Below are highlights from Federal Reserve Chairman Ben Bernanke's news conference following the Fed's policy announcement on Wednesday that the central bank would begin to trim its aggressive bond buying program.

ON INFLATION:

"If inflation does not show signs of returning to target, we will take appropriate action."

ON WHY INFLATION LIKELY TO RISE:

"We do think that inflation will gradually move back to 2 percent. Let me give you the case for why inflation might rise. First there are some special factors such as health care costs and some other things that have been unusually low and might be reversed. Secondly if you look at the fundamentals for inflation including inflation expectations that are measured by financial markets or surveys; if you look at growth which we now anticipate will be picking up both in the U.S. and internationally; if you look at wages which had been growing 2 percent and a little bit higher according to many indicators, all of these things suggest that inflation will gradually pick up."

 Bernanke bids farewell with Fed taper, reduces bond buying to bn/month

Ben Bernanke, in his last speech as Fed chief, begin to trim its aggressive bond buying program. Reuters

ON COMMITMENT TO RETURNING INFLATION TO TARGET:

"Inflation cannot be picked up and moved where you want it. It requires, obviously, some luck and some good policy. But we are very committed to making sure that inflation does not stay too low, and we are continuing to monitor that very carefully and to take whatever action is necessary to achieve that...

"It's difficult to get inflation to move quickly to target."

ON STAYING DATA DEPENDENT:

"On the first issue of $10 billion, again we say we are going to take further modest steps subsequently so that would be the general range but again I want to emphasize that we are going to be data dependent. We could stop purchases if the economy disappoints, we could pick them up somewhat if the economy is stronger."

ON DECIDING HOW MUCH TREASURIES, MBS TO TAPER:

"In terms of MBS versus Treasuries, we discussed that issue. I think that the general sense of the committee was that equal reductions or approximately equal reductions was the simpler way to do this. It honestly doesn't make a great deal of difference in the end how much we hold. So that was going to be our strategy."

ON THE UNEMPLOYMENT THRESHOLD:

"The unemployment rate is a good indicator of the labour market. It is probably the best single indicator that we have and so we were comfortable setting a 6.5 percent unemployment rate as the point at which we would begin to look at a more broad set of labor market indicators. However, precisely because we don't want to look just at the unemployment rate we want to, once we get to 6.5 percent, we want to look at hiring, quits, vacancies participation, long-term unemployment etc., wages. We couldn't put it in terms of another unemployment rate level specifically."

ON FED DEPUTY CHAIR JANET YELLEN:

"I have always consulted closely with Janet even well before she was named by the president and I consulted closely with her on these decisions as well. And she fully supports what we did today."

ON HOW THRESHOLDS ARE NOT TRIGGERS:

"We have emphasized that these numbers are thresholds not triggers, meaning that crossing the threshold would not lead automatically to an increase in the federal funds rate but would indicate only that it was appropriate for the committee to consider whether the broader economic outlook justified such an increase. With many FOMC participants now projecting that the 6.5-percent unemployment threshold will be reached by the end of 2014, the committee decided to provide additional information about how it expects its policies to evolve after the threshold is crossed."

ON FURTHER REDUCTIONS IN BOND BUYING:

"If incoming information supports the committee's expectation of further progress toward its objectives, the committee is likely to reduce the pace of monthly purchases in further measured steps in future meetings. However, the process will be deliberate and data-dependent. Asset purchases are not on a preset course."

ON PACE OF FUTURE TAPERING:

"If we are making progress in terms of inflation and continued job gains....I imagine we will continue to do probably at each meeting a measured reduction. That would take us to late in the year, certainly not by the middle of the year. If the economy slows for some reason or we are disappointed in the outcomes, we could skip a meeting or two. On the other side, if things really pick up and, of course, we could go a bit faster, but my expectation is for similar moderate steps going forward throughout most of 2014."

ON DECISION TO TAPER BOND PURCHASES:

"Today's policy actions reflect the committee's assessment that the economy is continuing to make progress but that it also has much farther to travel before conditions can be judged normal. Notably despite significant fiscal headwinds, the economy has been expanding at a moderate pace and we expect that growth will pick up somewhat in the coming quarters helped by highly accommodative monetary policy and waning fiscal drag."

ON ECONOMY'S LONG ROAD TO RECOVERY, LOW INFLATION:

"The recovery clearly remains far from complete with unemployment still elevated, with both underemployment and long-term unemployment still major concerns. We have also seen ongoing declines in the labor force participation, which likely reflects not only longer-term influences such as the aging of the population but also discouragement on the part of potential workers. Inflation has been running below the committee's longer run objective of 2 percent. The committee recognizes that inflation persistently below its objective could pose risks to economic performance and is monitoring inflation developments carefully for evidence that inflation will move back towards its objective over time."

Reuters

Updated Date: Dec 21, 2014 01:04:21 IST