ON EFFECTIVENESS OF QE2:
"The conclusion that the second round of securities purchases was
ineffective can only be validated if one thought this step was a panacea ...
that it was going to solve all the problems and return us to full employment
"We were very clear from the beginning that while we thought it was an
important step ... we were very clear this was not going to be a panacea and
that it was only going to turn the economy in the right direction. So, again,
relative to what we expected and anticipated I think the program was
"So why not do more? The trade-offs are getting less attractive at this
point. Inflation has gotten higher, inflation expectations are a bit higher, it
is not clear we can get substantial improvements in payrolls without some
additional inflation risks. In my views if we're going to have success in
creating a long-run, sustainable recovery, we're going to have to keep
inflation under control."
ON THE LABOR MARKET:
"We have made a lot of progress. Last August when there was talk about
another round of securities purchases, growth was very moderate and we were
actually quite concerned that growth was not sufficient to continue to bring
the unemployment rate down. Since then we have seen a reasonable amount of
payroll job creation and that picked up in the most recent months. Together
with a decline in the unemployment rate from 10 percent down to the current
rate of 8.8 percent. So the labor market is improving gradually as we say in
our statement. And we'd just like to make sure that that is sustainable and the
longer it goes on, the more confident we are."
"That being said, the pace of improvement is still quite slow and we are
digging ourselves out of a very, very deep hole. We are still something like 7
million plus jobs below where we were before the crisis and so clearly the fact
that we are moving in the right direction, even though that is encouraging,
doesn't mean that the labor market is in good shape. Obviously, it is not. We
are going to have to continue to watch and hope that we will get stronger and
increasingly strong job creation going forward."
ON FURTHER STIMULUS
"Going forward we will have to continue to make judgments whether
additional steps are warranted, but as we do so we have to keep in mind our
dual mandate, that we have to worry about the rate of growth, but also the
ON REINVESTING PROCEEDS OF MATURING SECURITIES:
"At some point, presumably early in our exit process, we will, I suspect,
based on the conversations we have been having around the FOMC table, it's very
likely that an early step will be to stop reinvesting all or part of the
securities which are maturing. But take note, that that step, although a
relatively modest step, does constitute a policy tightening because it would be
lowering the size of our balance sheet and therefore would be expected to
essentially tighten financial conditions. That being said, we therefore have to
make that decision based on the outlook, based on our view of how sustainable
the recovery is and what...the situation is with respect to inflation. We will
base that decision on the evolving outlook."
ON GASOLINE PRICES:
"This is a very adverse development. It accounts in the short-run for
pretty much almost the all the increase in our inflation forecast at least in
the very near-term. There is not much the Federal Reserve can do about gas
prices, at least not without derailing growth entirely, which is certainly not
the right way to go. What we can do is try to keep higher gas prices from
passing into other prices and wages throughout the economy, creating a broader
inflation, which would be much more difficult to extinguish."
"Our view is gas prices will not continue to rise at their recent pace. As
they stabilize and even come down as the situation stabilizes in the Middle
East, that will provide some relief on the inflation front, but we will have to
watch it very carefully."
ON EXTENDED PERIOD LANGUAGE:
"I don't know exactly how long it will be before a tightening process
begins, it will depend obviously on the outlook.... The extended period
language is conditional on ... resource slack, on subdued inflation and on
stable inflation expectations. Once those conditions are violated, or when
we're moving away from those conditions, that will be the time to begin to
"Extended period suggests there would be a couple of meetings before
action, but unfortunately (the reason) we use this vaguer terminology is that
we don't know how quickly a response will be required. Therefore we will do our
best to communicate our view but that will depend entirely on how the economy
ON THE DOLLAR:
"The Federal Reserve believes that a strong and stable dollar is both in
American interests and in the interest of the global economy...In our view if
we do what's needed to pursue our dual mandate for price stability, maximum
employment, that will also generate fundamentals that will help the dollar in
the medium term.
"The best thing we can do to create strong fundamentals for the dollar in
the medium term is to first keep inflation low, which maintains the buying
power of the dollar, and second, to maintain a strong economy."
ON INFLATION EXPECTATIONS:
"For the most part, I think it's fair to say that medium-term inflation
expectations have not really moved very much and they still indicate confidence
that the Fed will ensure that inflation in the medium term will be close to
what I've called the mandate-consistent level."
ON TRANSITORY NATURE OF SLOWDOWN:
"I would say that roughly that most of the slowdown in the first quarter is
viewed by the committee as being transitory. That being said, we have taken our
forecast down just a bit, taking into account factors like weaker construction
and possibly just a bit less momentum in the economy."
ON ZERO INFLATION
"Attempting to maintain inflation at zero will increase the risk of
experiencing an extended bout of deflation or falling wages and prices, which
in turn can lead employment to fall below its maximum sustainable level for a
protracted period. The goal of zero inflation is not consistent with the
Federal Reserve's dual mandate."