- Growth in the first quarter will be short of 2.0%, but 2011 should see overall growth between 3.1% and 3.3%. Economic growth will continue somewhat stronger (3.5%-4.0%) for 2012 and 2013. (See the Fed's forecast.).
- Bernanke noted that there was “quite a bit of uncertainty” in the forecasts of the FOMC participants, much of which was driven by global events.
- Inflation will be somewhat higher in 2011 (2.1%-2.8%) due to rising oil and other commodity prices, but will return to a more consistent longer-term trend of between 1.2%- 2.0% over the next two years.
- The Fed takes a “stock” view of monetary easing, meaning that the size of the Fed’s portfolio is what matters. While the Fed will cease securities purchases as planned at the end of the second quarter - thus stopping the growth of the balance sheet - the Fed will continue to re-invest maturing securities, keeping the Fed’s portfolio level constant.
This means that the amount of easing should remain constant, despite no additional new securities purchases. Bernanke noted that the “trade-offs are less attractive” now for continuing [adding to] the quantitative easing already underway.
- Bernanke said that an “early step” of "policy tightening" would be to stop re-investing maturing securities. What was not said is that monetary policy would continue to be very accommodating. Moreover, a decision to stop re-investing would likely be a precursor to any increases in interest rates.
- Bernanke said that and “extended period” for maintaining the current low interest rates will be determined by conditions. He did say that it would likely be a couple meetings, meaning that nothing is likely until the Fall.
See the three parts of Bernanke's speech:
1. Opening Remarks
2. Q&A Part 1
3. Q&A Part 2