In prepared comments before the US House Committee on Financial Services, Federal Reserve Chairman Bernanke commented on the outlook and monetary policy. He said the “pace of the expansion has been uneven and modest by historical standard,” although based on the “limited information available for 2012,” he indicated that growth in the coming quarters is likely to be “at a pace close to or somewhat above the pace that was registered during the second half of last year.” In terms of the labor market, he referred to “positive developments,” including job gains in recent months that have been “relatively widespread across industries” and noted that “the decline in the unemployment rate over the past year has been somewhat more rapid than might have been expected.” However, he said “continued improvement in the job market is likely to require stronger growth in final demand and production” and that the “job market remains far from normal.” He added that FOMC participants “did not anticipate further substantial decline in the unemployment rate over the course of this year.” For household spending, he noted that it “advanced moderately in the second half of last year,” supported by a “surge in motor vehicle purchases.” However, he remained concerned that “fundamentals that support spending continue to be weak,” as “real household income and wealth were flat in 2011, and access to credit remained restricted for many potential borrowers.” Regarding the inflation outlook, he noted that “gasoline prices have moved up,” but said this is a “development that is likely to push up inflation temporarily while reducing consumers’ purchasing power.”
In terms of monetary policy, he briefly reviewed past FOMC actions and discussed the statement describing the FOMC’s longer-term inflation goals and strategy. He added that the “statement does not imply a change in how the Committee conducts policy.” He concluded by saying the “Committee judges that sustaining a highly accommodative stance for monetary policy is consistent with promoting both objectives” of the Fed’s dual mandate.
Overall, the Chairman’s comments noted the improved tone of recent data, but also remained cautious by citing “persistent downside risks to the outlook for real activity.” He also maintained a view that inflation is “moderating” and, again, that any rise in inflation due to gasoline will likely be temporary. Thus, no signal was given in terms of adjusting the current stance of monetary policy or engaging in further asset purchases.
Barclays Capital