”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 overnight.
”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 successful.
“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.”
“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.”
“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 inflation rate.”
“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.”
“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.”
“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 tighten.”
“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 evolves.”
”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.”
“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.”
“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.”
“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.”