anBernanke Sees Signs Economy is Improving and Fiscal Policy Risks

• Large and increasing level of government debt runs risk of serious economic consequences
• Long way before labor market can be said to be operating normally
• Fed will continue to monitor situation in Europe closely, and take every available step to protect US financial system and economy
• There are concerns that have been weighing on US business investment
• Inflation has declined and Fed expects it to remain subdued
• Signs economy has declined and Fed expects it to remain subdued

Fed Chairman Ben Bernanke Press Conference

http://www.federalreserve.gov/newsevents/press/monetary/formcprojtabl20120125.pdf

• Fed is not changing the way it conducts monetary policy
• Fed aims to support a stronger recovery, and reiterates the highly accomodative stance
• Reiterates late 2014 interest rate language
• Clarity of policy direction is objective
• Higher Inflation would reduce ability on decisions
• maximum employment on equal footing with stale prices
• not feasible for any central bank to fix long run goal for employment
• Maximum employment level is not ‘immutable’
• Economy is expanding moderately with some slowing in global growth
• Jobless rate is elevated
• Further improvements in labor market
• Private sector effort must be significant
• Oil and commodities prices have flattened, turned to the downside
• CPI has been subdued, inflation should be at, or below, FOMC mandate
• Policy assessments should not be viewed as unconditional pledges

FOMC Interest Rate Commentary and Headlines

• 2012 growth at 2.2-2.6% vs. 2.5-2.9% in November forecast
• Longer-run unemployment projections signal Fed’s assessment of maximum employment, but assessments uncertain, subject to revision
• 6 of 17 Fed officials see no rate increase before 2015
• 2% inflation target most consistent over long run with mandate
• Maximum employment level largely determined by non-monetary factors
• Inflation target of 2% in its longer-run goals and policy strategy statement
• Not appropriate to adopt fixed goal for employment mandate

Richmond Fed Manufacturing Index Comes Out Much Higher than Expected

Survey: 6, Actual: 12, Previous: 3

US Philadelphia Fed Survey Due at 10AM

Fed Minutes of November-December Meetings

• Directors said economic outlook ‘somewhat improved’
• Governors expressed no sentiment to change discount rate
• Inflation pressures eased since early ’11
• KC fed directors sought to raise discount rate to 1%
• Boston fed sought to slash rate to 0.5%
• Directors noted ‘moderate growth’  in economy overall

Feds Williams on the Wires

Says:

• ‘Vital’ for fed to aid ‘suffering’ U.S. economy
• US unemployment level ’a national calamity’
• Doing ‘everything we can’ to support economy
• Unemployment likely to stay ‘very high’ for years
• US unemployment still shockingly high

St. Louis Fed President Bullard on the Wires

Says:

• Fed ‘very close’ to having inflation target
• Inflation targeting possible in 2012
• ‘Hard’ to talk of natural rate of unemployment
• ‘Getting closer’ to longer-term policy issues
• ‘Some measure of overall prices’ for possible target
• Inflation measures do make adjustments
• Forecasters too pessimistic on 2012

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