Federal Reserve Chairman Ben Bernanke and his fellow central bankers surprised some observers and the markets by sticking with monetary policy already in place. The decision to maintain $85 billion in monthly bond purchases "makes policy a little easier," Bernanke says. He had given the markets something of a head fake four months ago when he implied that the Fed could begin to wind down its bond purchases, known as "quantitative easing," this year.
An increase of a percentage point in mortgage interest rates followed the earlier Bernanke comments, which he acknowledged as a "concern" at the news conference.
It wasn't a very good year
Bernanke defended against the suggestion the markets were surprised by the Fed's decision not to cut back on bond purchases, telling one reporter, "I don't recall stating that we would do any particular thing at this meeting." Bernanke said the Fed would "do what's right for the economy."
The Fed requires "substantial improvement" in the job market before beginning to reduce this third round of quantitative easing, also known as QE3. Bernanke said there is no fixed schedule for reducing bond purchases. That leaves the chance that the "taper" could still happen this year.
Bernanke said that there has been "significant" improvement in unemployment. The unemployment rate has declined nearly 1 percentage point since the beginning of the asset purchase program, valued at about $1 trillion so far.
Stormy weather for the economy
Bernanke said a number of issues worry the Fed:
- Persistent unemployment.
- The slow recovery in the housing market.
- The threat of a government shutdown.
- The fight over the debt limit.
In releasing updated economic projections, the Federal Open Market Committee peeked into 2016. The Fed now sees unemployment going as low as 7.1 percent this year. It was 7.3 percent in August. The updated projection calls for the jobless rate to fall as low as 5.4 percent in 2016. Most FOMC members continue to see an increase in the benchmark federal funds rate no earlier than 2015.
He did it his way
Asked if he had any regrets about the Fed's handling of the financial crisis that began five years ago, Bernanke said, "Like Frank Sinatra said, I have many regrets." But he said much progress has been made in financial reform, including passage of the landmark Dodd-Frank reform law and efforts to require large banks hold more capital.
I get along without you very well
Bernanke had nothing new to say about the future leadership of the Fed. Bernanke's term ends in January and he said he prefers not to discuss his plans beyond that. Over the weekend, former Treasury Secretary Larry Summers took his name out of contention for nomination by President Barack Obama, leaving Vice Chair Janet Yellen as the most likely successor again.