Ben Bernanke stalls, confirms his $85 billion a month bond purchase plan and keeps rates at historic lows. “In the coming months, the Commission – reads the release at the end of the meeting on rates, which were kept unchanged at 0-0,25% – will closely monitor the information that will arrive on economic and financial developments. The Commission will continue to buy Treasuries and agency mortgage-backed securities, and use other appropriate instruments, until the labor market outlook has improved substantially in an environment of price stability.
In short, for now we are navigating on sight and no initiative is excluded. Bernanke in fact reiterated, as he has already done in the past, that the Commission is "ready to increase or reduce the pace of its purchases to keep the policy appropriate to changes in the labor market and inflation". And he specifies: "in determining the size, pace and composition of its purchases, the Commission will continue to take into consideration the probable effectiveness and costs of these purchases as well as the degree of improvement towards its economic objectives".
As expected by some observers, Bernanke, after his remarks a few weeks ago about a possible start of the reduction in the purchase of securities that have created chaos on the markets, does not say too much about a possible start of tapering but leaves various avenues open. No leap forward towards possible guidance on tapering even after today's data, albeit a preliminary reading, on US GDP which turned out to be better than expected.
The Fed notes that information received from the FOMC since its meeting in June suggests that economic activity grew at a modest pace in the first half of the year. “The conditions of the labor market – specifies the Commission led by Bernanke – have shown further improvements in recent months but the unemployment rate remains high. Household spending and business investment have improved and the real estate sector is strengthening but mortgage rates have risen somewhat and fiscal policy is limiting economic growth. Not only. Partly reflecting transitory effects, inflation has fallen below the long-term target of the Fed which acknowledges that a level persistently below 2% could pose risks to economic performance. In any case, long-term expectations remain stable and in the medium term inflation is expected to return above 2%. However, the downside risks to the economic outlook have diminished and the Fed expects an acceleration.
In line with its mandate, Bernanke reiterated, the Fed aims to push employment and price stability to the maximum. And in this context he reiterates his intention to continue with the purchases of bonds for 85 billion dollars a month and confirms his view for a strongly accommodating monetary policy, even after the end of the bond purchases. Bernanke points out that “monetary policy will remain adequate for a considerable period of time after the end of the bond purchase program and even after the economy has strengthened. In particular, the Commission has kept interest rates at 0-0,25%, confirming that these exceptionally low rates at historic lows will remain appropriate at least as long as the unemployment rate remains above 6,5%, the reference threshold introduced for the first a few months ago, and until the inflation outlook one or two years ahead is no more than half a percentage point above the Commission's target.
