Financial markets have been known to vacillate wildly when Ben Bernanke speaks. In the Federal Reserve Chairman’s final speech in Philadelphia, Bernanke conveyed a tone of cautious optimism in assessing the state of the U.S. economy and reiterated the central bank’s in-for-the long-haul approach, saying there was no slacking in the Fed’s “commitment to maintain a highly accommodative monetary policy for as long as needed,” Reuters reports.
QE taper a symbol of progress: Bernanke
Bernanke spoke at the American Economic Association forum on January 3 at a Philadelphia hotel in what Reuters describes as a packed house of economists, journalists, and students. The outgoing Fed chairman, who will be replaced by Janet Yellen at the end of January, did not sugar-coat the state of the U.S. economy in the last formal address he will make as leader of the reserve bank.
According to Reuters, Bernanke described the economy’s recovery as “clearly…incomplete” but reminded the audience that there was no question the Fed would continue its accommodative ways as that recovery continues. As for the highly scrutinized bond-buying initiative known as quantitative easing, or QE, Bernanke told the crowd the slight pullback in December 2013 was a manifestation of progress.
Indeed, Bernanke had often stated there would be no reduction in the Feds bond buying until improvements in the economy warranted a lesser financial commitment from the central bank. The Fed chair said the reduction of QE by $10 billion in December was a symbol the economy was making progress toward its “goal of substantial improvement.”
Fed operating framework may change
There is no question the Fed has grown its balance sheet to an unprecedented size under Bernanke’s tenure. Now that there is a measure of stability, Bernanke said it’s conceivable that “specific aspects of the Federal Reserve’s operating framework will change,” Reuters reports. The Federal Open Market Committee, or FOMC, would be keeping the Fed’s $4 trillion balance sheet in cosideration as it plans its next moves.
Other Fed officials addressed concerns over inflation and a too-swift reduction in bond purchases. Jeffrey Lacker, who presides over the Richmond Fed, said that only legitimate economic concerns could force the central bank to stop its QE taper, Reuters reports.
Bernanke closed his speech by reminding the audience — and all to whom his remarks would be broadcast within minutes — that any sign of economic progress should be tempered with reserve. Either way, the Fed is in for the long haul with every available tool at its disposal.