Fed Chief Ben Bernanke’s first press conference offered changes in economic forecasts, but at least three economy watchers say not much new was learned about the economy.
Bernanke, head of the Federal Reserve Board, conducted the first-ever press conference Wednesday (April 27) as part of an effort to increase transparency with the federal agency primarily responsible to set national monetary policy in a way that stabilizes prices and maximizes employment.
GDP, JOBLESS FORECASTS
In an about 15-minute presentation before questions from the media, Bernanke lowered expectations for 2011 GDP growth from 3.3% to 2.9%. The downward revision is based on what is expected to be a lackluster first quarter GDP report — set for release Thursday. Reduced defense spending, weaker exports and weather were cited by Bernanke as reasons for unexpected “softness” in the economy.
Bernanke did note that the housing market “is depressed,” and warned weak residential construction could continue through 2011.
The U.S. unemployment rate in 2011 should average 8.7%, down from a previous forecast of 8.9%, according to Bernanke. He said a “moderate recovery” should continue through 2011, with “acceleration of growth” expected in 2012 and 2013. That acceleration should lower the national unemployment rate to the 6.8%-7.2% range in 2012, according to the Fed.
INFLATION, INTEREST RATES
Economists and those in the business media recently have blamed rising inflation on the Fed’s monetary policy which has injected money into the economy through low interest rates, asset-backed securities support and other measures. Bernanke has calmly refuted the blame and continued Wednesday to insist that rising inflation is “transitory” and based on higher fuel and commodity prices that will not continue.
He also said it is not likely that interest rates will change for at least “a couple of meetings,” which pushes to August the chance of an interest rate increase.
However, the Fed said the 2011 rate of inflation will be 2.8%, up from the previous forecast of 1.7%.
Bernanke noted there is little the Fed can do about higher gas prices, but is watching close for “second-round effects” of higher fuel and commodity prices on the economy.
“Overall the first press conference by the Fed chairman revealed nothing new but should lead to the perception of more transparency on the part of the Fed,” said John Taylor, senior vice president of John Taylor Financial-Sterne Agee and a member of the board of directors at Fort Smith-based Benefit Bank.
Taylor said the key takeaway from the first press conference is that interest rates are likely to remain low for the near term.
Jeff Collins, an economist and author of The Compass Report, said it is known that some members of the Fed Board are concerned about inflation. But Fed policy is based on consensus, Collins reminded, and the present consensus is that inflation concerns are secondary compared to pushing monetary policy that supports economic recovery.
“Those in the minority are and have been concerned about the impact of monetary policy on price levels. However, the Fed is committed to leaving the current stimulus in place, especially given the moderate inflation evident in the ‘core’ CPI and the soft labor market generally across the U.S.,” Collins noted.
Collins also said the press conference provided no significant new info about the economy or monetary policy.
Dr. Michael Pakko, economist with the Institute for Economic Advancement at the University of Arkansas at Little Rock, said only “tidbits” of new information were provided by Bernanke.
“The new press conference did provide some tidbits of information that would not otherwise be available. For example, in response to a question about deficit-reduction, the Chairman referred to the view of the Committee that budget cuts that have been implemented to date have not had much of an impact on the aggregate economy,” Pakko explained. “Statements like this reveal the type of analysis reviewed by the Committee that would not otherwise be available until after the release of the meetings’ minutes, three weeks from now. However, there were no real surprises of any substance.”
U.S. Sen. John Boozman, R-Ark., issued this statement about Bernanke’s press conference: “It is appropriate, especially in our current economic state, for Chairman Bernanke to respond to questions Americans want answers to. We welcome these press conferences because transparency is more important than ever in the wake of passage of the Dodd-Frank financial reform legislation that gives more power to a Federal Reserve that failed to detect or made worse our nation’s financial problems. We need to make sure the Fed is held accountable and this is a good first step in accomplishing that.”
Michael Tilley with our content partner, The City Wire, is the author of this article. He can be reached by e-mail at firstname.lastname@example.org.
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