In his remarks to the Committee on Financial Services, Fed chairman Ben Bernanke said that the pause in real GDP growth last quarter does not appear to reflect a stalling-out of the recovery. Rather, economic activity was temporarily restrained by weather-related disruptions and by transitory declines in a few volatile categories of spending, even as demand by U.S. households and businesses continued to expand. Available information suggests that economic growth has picked up again this year.
Commenting on inflation, Bernanke said overall inflation remains low and measures of longer-term inflation expectations have remained in the narrow ranges seen over the past several years. Against this backdrop, the FOMC anticipates that inflation over the medium term likely will run at or below its 2% objective.
Bernanke reiterated the Feds position on guidance with regard to “current low interest rates” and said the new guidance established at its December 2012 meeting unemployment rate remains above 6.5% and inflation indexes remain in the less than 2% range – serves to underscore the Committee’s intention to maintain accommodation as long as needed to promote a stronger economic recovery. The Fed chief noted that although a long period of low rates could encourage excessive risk-taking, to this point we do not see the potential costs of the increased risk-taking in some financial markets as outweighing the benefits of promoting a stronger economic recovery and more-rapid job creation.
Bernanke also noted that the FOMC would continue to purchase agency mortgage-backed securities at a rate of $40 billion per month and, in addition, beginning in January, it would purchase longer-term Treasury securities at an initial pace of $45 billion per month until it observes a substantial improvement in the outlook for the labor market in a context of price stability.
To read the full text of Bernanke’s Monetary Policy Report to Congress
click here.