WASHINGTON (Reuters) - The following are highlights from Federal Reserve Chairman Ben Bernanke’s speech to the National Press Club on Thursday.
“Emerging markets are growing very quickly for a couple of reasons. One is just the fact there has been a long-term trend for emerging markets to develop very quickly and that on the whole is a very positive development because it means that people who were in poverty are moving closer and closer to a more middle class standard of living.
“But as people’s diets are becoming more sophisticated and as they eat more beef and less grains and so on, the demand for food and energy rise and that’s the primary long-term factor affecting the real price of commodities and food.
“Some of the emerging markets are facing inflationary pressures because their own economies are growing perhaps even faster than their capacity.
“I think it’s entirely unfair to attribute excess demand pressures in emerging markets to U.S. monetary policy because emerging markets have all the tools they need to address excess demand in those countries.”
“The economy has to grow about 2-1/2 percent in real terms just to accommodate people coming into the work force so in order to keep the unemployment rate constant we need about 2-1/2 percent growth. ... We were looking at a situation in August where we thought the unemployment rate would actually begin to rise again. ... Looking forward into 2011 we think it will be above 2-1/2 percent and therefore we expect to see unemployment declining over time. It’s not as fast as we would like but on the other hand there is some good news. Looking at the whole range of statistics on the labor market, the sense is that employers are becoming more willing to hire and I think we’ll start seeing some stronger payroll reports and some lower unemployment rates pretty soon.”
“This is a very serious matter, because under current law if the debt limit is not extended for a time, the Treasury has various resources it can use to make payment on the national debt. Beyond a certain point it would not have those resources and the United States could conceivably, I think this is very remote, but it’s not something you want to play around with, the United States would be forced into a position of defaulting on its debt. And the implications of that on our financial system, our fiscal policy and our economy would be catastrophic. I would very much urge Congress not to focus on the debt limit as being the bargaining chip in this discussion, but rather to address directly the spending and tax issues that we have to deal with in order to make progress on this fiscal situation.”
FROM Q&A SESSION:
“First, to be very clear, the purpose of monetary policy easing is not to increase stock prices per se, the purpose is to strengthen the U.S. economy, put people back to work, and create price stability. But, the way monetary policy always works is through interest rates and asset prices — that’s how it always works — by changing those prices in financial markets. So yes, I do think that by taking these securities out the markets and pushing investors into alternative assets, we have led to higher stock prices and to lower stock market volatility.”
“We pay very close attention to oil prices and other commodity prices because they do present clearly two kinds of risks. The first is that higher oil prices are kind of a tax. We are trying to stimulate the economy. We are trying to get consumers to become more confident, be able to spend more, and to help put people back to work. To the extent that part of their income gains are drained away by higher gas prices, for example, that’s going to be a negative, that will slow the recovery. So, as international factors lead to higher oil and commodity prices, that is definitely a negative from the perspective of consumers and household budgets and economic growth.
“We face a very challenging period ... we’ve had enormous problems, issues with the financial markets, we’ve had instability, we’ve had to address those. I believe we addressed them adequately in terms of stabilizing the system. Now we have to implement a new set of laws, new set of rules to ensure we don’t have this kind of instability again.”
“At the same time the economy, though it does look to be growing more quickly, is still in a deep hole, is still very far from where we’d like to be and we need to manage policy — both monetary policy and fiscal policy — to try to put people back to work in way that is consistent with stability and in particular with continuing low inflation.”
“On press conferences, it has been a difficult decision. We thought about it. On one hand, real time transparency is very important and valuable. On the other hand, we don’t want to create unnecessary uncertainty, unnecessary volatility in financial markets by saying things that may be misinterpreted if they are too ad hoc.”
“The economic recovery that began in the middle of 2009 appears to have strengthened in recent months, although, to date, growth has not been fast enough to bring about a significant improvement in the job market.”
“Overall, ... improving household and business confidence, accommodative monetary policy, and more-supportive financial conditions, including an apparent increase in the willingness of banks to make loans, seems likely to lead to a more rapid pace of economic recovery in 2011 than we saw last year.
“Recent data do provide some grounds for optimism on the employment front. ... Even so, with output growth likely to be moderate for awhile and with employers reportedly still reluctant to add to their payrolls, it will be several years before the unemployment rate has returned to a more normal level. Until we see a sustained period of stronger job creation, we cannot consider the recovery to be truly established.”
“We have recently seen significant increases in some highly visible prices, notably for gasoline. Indeed, prices of many commodities have risen lately, largely as a result of the very strong demand from fast-growing emerging market economies, coupled, in some cases, with constraints on supply. Nevertheless, overall inflation remains quite low.”
ON THE FED’S POLICY MANDATE AND ITS ASSET PURCHASE PROGRAM:
“In sum, although economic growth will probably increase this year, we expect the unemployment rate to remain stubbornly above, and inflation to remain persistently below, the levels that Federal Reserve policymakers have judged to be consistent over the longer term with our mandate from the Congress to foster maximum employment and price stability.”
“My colleagues and I have said that we will review the asset purchase program regularly in light of incoming information and will adjust it as needed to promote maximum employment and stable prices.”
“To put the budget on a sustainable trajectory, policy actions—either reductions in spending or increases in revenues or some combination of the two—will have to be taken to eventually close these primary budget gaps.”
“Acting now to develop a credible program to reduce future deficits would not only enhance economic growth and stability in the long run, but could also yield substantial near-term benefits in terms of lower long-term interest rates and increased consumer and business confidence.”