The US Federal Reserve’s monetary stimulus is helping the US economy recover, but the central bank needs to see further signs of traction before taking its foot off the gas pedal, Fed Chairman Ben Bernanke said on Wednesday.
A decision to scale back the US$85 billion in bonds the Fed is buying each month could come at one of the central bank’s “next few meetings” if the economy looked set to maintain momentum, Bernanke told US Congress.
However, minutes from the Fed’s most recent meeting released on Wednesday showed the bar was still relatively high.
“Many participants indicated that continued [job market] progress, more confidence in the outlook, or diminished downside risks would be required before slowing the pace of purchases,” according to minutes from the meeting held on April 30 and May 1.
In testimony that showed little immediate desire to retreat from the Fed’s third and latest round of bond buying, Bernanke emphasized the high costs of both unemployment and inflation, which respectively continue to run above and below the Fed’s targets.
“Monetary policy is providing significant benefits,” Bernanke told the congressional Joint Economic Committee, citing strong consumer spending on autos and housing, as well as increases in household wealth.
“Monetary policy has also helped offset incipient deflationary pressures and kept inflation from falling even further below the [Fed’s] 2 percent longer-run objective,” he said.
The central bank is currently buying US$45 billion in US Treasury bonds and US$40 billion in mortgage-backed debt each month to keep borrowing costs low and encourage investment, hiring and economic growth.
“I believe the Fed, while feeling more confident in the economy bottoming, is not yet comfortable with ending QE [quantitative easing] and the US economic crutch it offers,” said Douglas Borthwick, managing director of Chapdelaine Foreign Exchange in New York.
Bernanke said that the main inflation gauge the Fed monitors rose just 1 percent in the 12 months through March, just half the central bank’s 2 percent target.
He said the Fed was prepared either to increase or reduce the pace of its bond buys depending on economic conditions.
“If we see continued improvement and we have confidence that that’s going to be sustained then we could in the next few meetings ... take a step down in our pace of purchases,” he said.
“If we do that it would not mean that we are automatically aiming toward a complete wind down. Rather, we would be looking beyond that to see how the economy evolves and we could either raise or lower our pace of purchases going forward,” he added.
US economic growth rose to a 2.5 percent annual rate in the first quarter following an anemic end to last year.
The unemployment rate has fallen to 7.5 percent from a peak of 10 percent, but remains, as Bernanke put it, “well above its longer-run normal level.”
Bernanke said some headwinds facing the economy, including the debt crisis in Europe, have been dissipating.
However, he said a sharp tightening of the US government’s budget had become too big of a drag on growth for the central bank to offset fully.
Bernanke told the committee the Fed was aware of the risk that keeping monetary policy too easy for too long could fuel asset price bubbles.
However, he said the central bank believed major asset prices were justified by the economy’s fundamentals.
Further, he warned of the risks to pulling back on stimulus too early.
“A premature tightening of monetary policy could lead interest rates to rise temporarily, but would also carry a substantial risk of slowing or ending the economic recovery and causing inflation to fall further,” Bernanke said.
He also suggested the Fed could refrain from selling off some of the mortgage-backed securities it has acquired when the time finally came to tighten monetary policy.
“I personally believe that we could exit without selling any MBS,” he said.
Stephen Garrett, a 27-year-old graduate student, always thought he would study in China, but first the country’s restrictive COVID-19 policies made it nearly impossible and now he has other concerns. The cost is one deterrent, but Garrett is more worried about restrictions on academic freedom and the personal risk of being stranded in China. He is not alone. Only about 700 American students are studying at Chinese universities, down from a peak of nearly 25,000 a decade ago, while there are nearly 300,000 Chinese students at US schools. Some young Americans are discouraged from investing their time in China by what they see
MAJOR DROP: CEO Tim Cook, who is visiting Hanoi, pledged the firm was committed to Vietnam after its smartphone shipments declined 9.6% annually in the first quarter Apple Inc yesterday said it would increase spending on suppliers in Vietnam, a key production hub, as CEO Tim Cook arrived in the country for a two-day visit. The iPhone maker announced the news in a statement on its Web site, but gave no details of how much it would spend or where the money would go. Cook is expected to meet programmers, content creators and students during his visit, online newspaper VnExpress reported. The visit comes as US President Joe Biden’s administration seeks to ramp up Vietnam’s role in the global tech supply chain to reduce the US’ dependence on China. Images on
New apartments in Taiwan’s major cities are getting smaller, while old apartments are increasingly occupied by older people, many of whom live alone, government data showed. The phenomenon has to do with sharpening unaffordable property prices and an aging population, property brokers said. Apartments with one bedroom that are two years old or older have gained a noticeable presence in the nation’s six special municipalities as well as Hsinchu county and city in the past five years, Evertrust Rehouse Co (永慶房產集團) found, citing data from the government’s real-price transaction platform. In Taipei, apartments with one bedroom accounted for 19 percent of deals last
US CONSCULTANT: The US Department of Commerce’s Ursula Burns is a rarely seen US government consultant to be put forward to sit on the board, nominated as an independent director Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), the world’s largest contract chipmaker, yesterday nominated 10 candidates for its new board of directors, including Ursula Burns from the US Department of Commerce. It is rare that TSMC has nominated a US government consultant to sit on its board. Burns was nominated as one of seven independent directors. She is vice chair of the department’s Advisory Council on Supply Chain Competitiveness. Burns is to stand for election at TSMC’s annual shareholders’ meeting on June 4 along with the rest of the candidates. TSMC chairman Mark Liu (劉德音) was not on the list after in December last