U.S. Federal Reserve Chairman Ben S. Bernanke indicated that the central bank is weighing the potential costs from its $85 billion U.S. in monthly purchases of bonds while saying the unorthodox easing bolsters the economy.
"So far, we think we are getting some effect, it is kind of early," Bernanke said yesterday at the University of Michigan’s Gerald R. Ford School of Public Policy in Ann Arbor. "We are going to continue to assess how effective" the program is "because it is possible that as you move through time and the situation changes that the impact of these tools could vary."
The Federal Open Market Committee last month decided to add $45 billion U.S. in monthly purchases of U.S. Treasury notes to its program buying $40 billion U.S. of mortgage-backed securities each month. The committee set no limit on the size or duration of the bond purchases.
Minutes from the Dec. 11-12 meeting showed that even as they were preparing to launch new Treasury purchases, "several" FOMC members said it would "probably be appropriate to slow or stop buying well before the end of 2013." A "few" others were willing to let the program run to the end of the year, while "a few others" didn’t give a time frame.
In its statement last month, the FOMC said it will keep rates near zero as long as the jobless rate is above 6.5% and inflation is forecast to be 2.5% or less. Previously they said they will keep interest rates low through at least mid-2015. Bernanke said the nation’s 7.8% unemployment rate in December "is not an acceptable situation”"especially when 40% of the jobless haven’t worked for six months or more.
There are “too many people whose skills and talents are being wasted," he said. "We’ll be assessing the impact of our actions on financial market conditions and looking to see how those link up to developments in (labour) markets and in the broader economy."
Bernanke at a Dec. 12 press conference linked the bond purchases to "substantial" improvement in labour market conditions. The Fed’s balance sheet totaled $2.93 trillion U.S. last week
Bernanke told his audience in Ann Arbor that he is "cautiously optimistic" about the economic outlook for the next couple of years, while noting that inflation is below the Fed’s 2% target and unemployment is too high.
The Fed estimated in December that labour supply and demand would be in balance -- and the economy expanding at an optimal rate with low inflation -- with an unemployment rate of 5.2-6%
