Bernanke says the Fed not convinced on jobsFederal Reserve Chairman Ben S. Bernanke and his fellow policy makers, expressing concern that federal budget cuts are blunting the recovery, signaled little appetite for reducing record stimulus without what he called “real and sustainable” progress in reducing unemployment.
“What we are looking for is increased confidence that the labor market is improving and that that improvement is sustainable,” Bernanke told lawmakers Wednesday. “And as we see that, we will in steps respond to that by reducing the amount of accommodation in a way that’s appropriate.”
Bernanke’s testimony to the Joint Economic Committee of Congress and comments by Federal Reserve Bank of New York President William C. Dudley showed caution over trimming the central bank’s bond purchase program too soon. The burden is on the economy to show durable job gains in the face of falling government spending, they said. Many Fed officials said more labor market progress is needed before paring $85 billion in monthly asset purchases, minutes of their last meeting showed Wednesday.
“There is no urgency to do anything now,” said Roberto Perli, a partner at Cornerstone Macro LP in Washington and a former member of the Fed’s Division of Monetary Affairs. “They will keep going at this pace and wait until the September meeting to decide.”
U.S. stocks initially extended gains while Treasuries rallied on Bernanke’s remarks that an early end to its bond buying would put the economic recovery at risk. Treasuries turned lower and equities retreated as Bernanke, responding to a question from Representative Kevin Brady, the Texas Republican who chairs the committee, said the flow of purchases could be reduced “in the next few meetings” if the Fed is confident gains in the economy can be sustained.
The Standard and Poor’s 500 Index fell 0.8 percent in New York Wednesday to close at 1,655.35. Ten-year Treasury yields jumped 11 basis points to 2.04 percent, topping 2 percent for the first time since March.
The Fed has said it will maintain bond purchases until a labor market beset by 7.5 percent unemployment has “improved substantially.”
That’s a departure from previous quantitative-easing programs, which had specified end-dates and amounts. In the past three years, the Fed planned to cut accommodation early in the year, only to boost it again after growth lagged behind its forecasts.
“They want to wait and see if for the first time in three years we don’t go through a summer slowdown,” Perli said. He said officials might not have enough data to make a decision until September. They next meet June 18.
Since the Fed began a third round of bond purchases in September, the economy has added 193,000 jobs per month, compared with 141,000 over the previous six months.
“Despite this improvement, the job market remains weak overall,” Bernanke said. He pointed to historically high rates of long-term unemployment and declining labor-force participation.
“High rates of unemployment and underemployment are extraordinarily costly,” he said. “Not only do they impose hardships on the affected individuals and their families, they also damage the productive potential of the economy as a whole.”
Given the jagged pattern of the almost four-year recovery, basing policy on a current trend is difficult for policy makers, said Stephen Oliner, a resident scholar at the American Enterprise Institute in Washington.