US Federal Reserve Chairman Ben Bernanke sought to cast the central bank as a dependable custodian of the US recovery in a first-ever press conference on Wednesday, as the bank began to inch away from crisis-era policies.
Heralding a second attempt to halt — and eventually reverse — the stimulus spending that has helped prop up the recovery, Bernanke said the Fed would complete a US$600 billion bond buy-up in June as planned.
“We’re just going to let the purchases end,” he said, hosting the first post-policy meeting press conference in the Fed’s 97-year history.
However, with stubbornly high unemployment, a moribund housing market and continuing slow growth, Wednesday’s move was far from a full-blown retreat from emergency measures.
Bernanke signaled that after this round of spending the bank would leave the current level of stimulus in place, as it assesses whether the economy is strong enough to thrive on its own.
Since the 2008 financial crisis the Federal Reserve has lapped up assets, nearly tripling its holdings and pumping almost US$1.8 trillion extra into the economy in the process.
Bernanke said that level “should essentially remain constant going forward from June,” while hinting that further spending was off the table for now.
“The trade-offs are getting — are getting less attractive at this point,” he said.
His caution could stem from the still-shaky economic outlook and the Fed’s last stalled effort to normalize policies.
In November the central bank was forced to abort its first effort to freeze stimulus spending and instead restarted spending as fears grew that the world’s largest economy could suffer a double-dip recession.
However, the bigger concern appears to be the economic outlook.
Earlier on Wednesday the -central bank’s interest rate-setting panel noted the “economic recovery is proceeding at a moderate pace and overall conditions in the labor market are improving gradually.”
A core of the Federal Open Market Committee’s 10 members expected growth to hit between 3.1 percent to 3.3 percent this year, markedly less than previously expected.
A day before the US publishe its growth figures for the first quarter of the year, Bernanke said growth would be “a relatively weak number,” around 2 percent.
Fed members also said inflation would be sharply higher than expected and unemployment would be slightly lower, painting a mixed picture of the economy.
However, the bank’s ambiguous stance on future stimulus spending is unlikely to dampen criticism that the Fed’s policies — along with rising oil and food costs — could result in a vicious spiral of rising prices that would act like a tax on consumers.
Bernanke largely dismissed those concerns, insisting that volatile oil and food prices are a poor gauge of long-term inflation, and defended the Fed’s policies.
“The Federal Reserve has undertaken extraordinary measures,” Bernanke said, adding “we were able to get the financial easing that we were trying to get,” but he did express some empathy with Americans suffering under higher gasoline prices at the pump.
“Higher gas prices are absolutely creating a great deal of financial hardship for a lot of people,” he said.
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