• Making Sense of the Latest Fed Announcement

    The Federal Open Market Committee expressed qualified confidence in the recovery. And the Federal Reserve will be keeping interest rates low, and will bring about an end of its second round of quantitative easing. From the FOMC release: Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The unemployment rate remains elevated, and measures of underlying inflation continue to be somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate. Increases in the prices of energy and other commodities have pushed up inflation in recent months. The Committee expects these effects to be transitory, but it will pay close attention to the evolution of inflation and inflation expectations. The Committee continues to anticipate a gradual return to higher levels of resource utilization in a context of price stability. To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to continue expanding its holdings of securities as announced in November. In particular, the Committee is maintaining its existing policy of reinvesting principal payments from its securities holdings and will complete purchases of $600 billion of longer-term Treasury securities by the end of the current quarter. The Committee will regularly review the size and composition of its securities holdings in light of incoming information and is prepared to adjust those holdings as needed to best foster maximum employment and price stability. Read the full press release here . Following the FOMC meeting, Fed chair Ben Bernanke spoke in a highly anticipated press conference. And he defended the Fed's decision to end QE2, saying that the policy was "never meant to be a cure-all." Here is a video excerpt from the Wall Street Journal : And for some interpretation of Bernanke's presser, we turn to MoneyWatch , where Mark Thoma discussed the Fed's latest announcements with MoneyWatch.com editors Eric Schurenberg, Jill Schlesinger and Jack Otter :

  • Bernanke Speech on Happiness

    Fed Chair Ben Bernanke went back to his birth state to deliver the commencement address at the University of South Carolina this weekend. And he tackled a topic that has become an increasingly popular area of study for economists (and sociologists, and political scientists, and legal scholars): happiness. And while Bernanke hit on the basic truism that money can't buy happiness, he did connect a nation's happiness to some of the work of top financial policymakers, like himself: This traditional economist’s perspective on happiness is not as narrow and Scrooge-y as you might think at first. If I were to ask you what you value in life besides goods and services--a nice car or house, for example--you might begin with, say, your health. Well, richer countries have more resources to devote to medical care, to good nutrition and sanitation, and to workplace safety, and for these and other reasons rich countries have higher life expectancies, lower infant mortality rates, and generally better health indicators than poor countries. Likewise, as the United States has grown richer over time, longevity and other measures of health have improved. Another thing that most people value is a clean environment. Air and water quality are not included in the broadest measure of economic activity emphasized in government statistics, the gross domestic product (GDP), although some economists have worked on ways to do so. But again, rich countries have more resources to devote to maintaining a clean environment and do tend to have better air and water quality than poor and middle-income countries, notwithstanding the fact that rich countries by definition produce more goods and services. Rich countries also generally provide people more leisure time, less physically exhausting and more interesting work, higher education levels, greater ability to travel, and more funding for arts and culture. Again, these linkages, together with the benefits of enjoying a wide variety of goods and services, are the reason that economic policymakers--at the behest of the public--usually put heavy emphasis on job creation and growth. Along with price stability, maximum employment is one of the Congress’s two mandated objectives for the Federal Reserve. And, indeed, economists researching happiness and life satisfaction have found that both inflation and unemployment detract from happiness, consistent with the focus on these macroeconomic conditions in the mandate of the Federal Reserve. You can read the full speech here . (H/t Barry Ritholtz )

  • Bernanke: 'Recession is very likely over'

    Add Fed Chair Ben Bernanke's voice to the growing chorus that the recession appears to be over and a long slow recovery is beginning. Bernanke spoke at the Brookings Insititution yesterday about the events of the last year, and during his speech he noted that he was well aware that forecasters were announcing the end of the recession. Here is a key excerpt from the speech. But the general view of most forecasters is that that pace of growth in 2010 will be moderate, less than you might expect given the depth of the recession, because of ongoing headwinds, including still ongoing financial and credit problems, you know, deleveraging by households, the needs for adjustments in the economy, sectoral adjustments in the economy, the need for a fiscal exit at some point, many, many factors that will likely, at least based on current information, make the 2010 recovery moderate, and in particular, not much faster than sort of the underlying potential growth rate of the economy. And the arithmetic is that unless the economy grows, you know, significantly faster than its longer term growth rate, it’ll be relatively slow in creating jobs over and above those needed to employ people coming into the labor force, and therefore, the unemployment rate would tend to come down quite slowly. So that’s a risk, that’s a possibility. Of course, there is on both sides of that forecast; we could have a stronger recovery, we could have a weaker recovery, but if we do, in fact, see moderate growth, but not growth much more than the underlying potential growth rate, then, unfortunately, unemployment will be slow to come down. It will come down, but it may take some time. Obviously, that’s a very serious concern, and that’s one reason why, even though from a technical perspective the recession is very likely over at this point, it’s still going to feel like a very weak economy for some time as many people will still find that their job security and their employment status is not what they wish it was, and so that’s a challenge for us and all policy-makers going forward. You can read a full transcript of the speech, and watch the full session by clicking here .