Fed focuses on jobs for QE3

Federal Reserve Chairman Ben Bernanke took a somber tone toward the labor market throughout his prepared remarks and in response to questions at a press conference today following the Federal Open Market Committee’s (FOMC’s) meeting. Although the FOMC’s release announcing its intention to begin a third round of quantitative easing (QE3) mentioned inflation concerns, the labor market was given primary importance. “The weak job market should concern everyone,” Bernanke said.

To stimulate the economy to improve the labor market, the FOMC announced an open-ended QE3 today in which it committed to buying $40 billion worth of mortgage-backed securities per month with no cap or end date given. Last week the European Central Bank agreed to an unlimited bond-purchase program to regain control of interest rates in the euro area and fight speculation of a currency breakup.

When asked about the lack of any cut-off date or set figure, Bernanke said the FOMC is more concerned with seeing material improvements in the economy, noting that the Fed “will not be premature in ending accommodative policy. We will not rush, but will give it time to ensure the recovery is well-established.”

As part of his prepared remarks in the press conference, Bernanke addressed three concerns that have been raised about further accommodative policy. On the first concern that it is akin to government spending, he stressed that the Fed is buying financial assets and not goods or services, and those assets eventually will be sold back into the market or allowed to mature, which ultimately should help reduce the Federal deficit and debt.

The other two concerns addressed the Committee’s impact on savers and the risk of inflation down the road. In each case, Bernanke says that although there may be short-term negatives in each area, Americans can expect the most benefit from the boost in the economy from lower interest rates.

Although Bernanke was asked a number of questions, he continued to emphasize the importance of the labor market throughout his answers, but expressed frustration that the Fed cannot solve the nation’s unemployment problem alone. “The policies that we have undertaken have had real benefits to the economy and have reduced unemployment. Monetary policy alone is not a panacea; policy makers need to address this as well,” he said. “The Federal Reserve alone cannot solve the unemployment problem. We do not have strong enough tools.”

President Barack Obama has been criticized harshly by Republicans for the high unemployment rate, and when asked how the Fed’s latest action may affect the political race in November Bernanke emphasized the Fed’s independence from partisanship. “We have tried very, very hard to be non-partisan and apolitical,” he said. “We make our decisions solely on the state of the economy. We think that’s the best way to maintain our independence and the trust of the public.”

In addition to adding to its monthly securities purchases, the FOMC also extended its guidance to keep interest rates at historic lows through mid-2015. The Fed has tried to gain credibility from the public and investors with increased communication and transparency, Bernanke noted, adding that the Committee is keen to keep that trust. “By following through on what we say [we are going to do] now, we can have a reserve of credibility for future actions down the road,” he said.

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