“Conditions in the job market today are still far from what all of us would like to see,” chairman Ben Bernanke said at a press conference in Washington yesterday after a two-day meeting of the Federal Open Market Committee. “The committee has concern that rapid tightening of financial conditions in recent months would have the effect of slowing growth.”
Bernanke and his colleagues held back from paring record accommodation as rising borrowing costs show signs of slowing the four-year expansion. Treasury yields have jumped since May, when Bernanke first outlined a possible timetable for a reduction in the asset purchases that have swelled the Fed’s balance sheet to $3.66 trillion.
Stocks and Treasuries soared. The Standard & Poor’s 500 Index climbed 1.3% to an intraday record of 1,727.36 at 3.11pm in New York. The yield on the 10-Year Treasury note dropped 15 basis points to 2.70%.
Bernanke said a decision on tapering asset purchases depends on economic data, and there is no set timetable.
“If the data confirm our basic outlook” for growth and the labour market, “then we could begin later this year,” he said.
The Fed chairman has orchestrated the most aggressive easing in the Fed’s 100-year history, pumping up the balance sheet from $869bn in August 2007 and holding the main interest rate close to zero since Dec 2008.
The central bank left unchanged its guidance that it will probably hold its target interest rate near zero “at least as long as” unemployment exceeds 6.5%, so long as the outlook for inflation is no higher than 2.5%.
Bernanke added in his press conference that the first interest-rate increase may not come until the jobless rate is “considerably below” 6.5%.
Most Fed policymakers expect the first increase in the nation’s benchmark lending rate to occur in 2015, according to projections released today.
The federal funds rate target will be 2% at the end of 2016, according to the median of estimates by five governors on the Fed’s board and 12 reserve bank presidents. That rate compares with their median estimate of 4% for where the rate should be at a time of full employment and stable prices.
Fed officials’ forecast US gross domestic product to increase 2% to 2.3% this year, 2.9% to 3.1% in 2014, and 3% to 3.5% in 2015, according to the central tendency forecasts.
In June, they had estimated 2.3% to 2.6% growth in 2013, 3% to 3.5% expansion in 2014 and 2.9% to 3.6% growth in 2015. The central tendency forecasts exclude the three highest and three lowest projections.
US companies created 169,000 jobs last month, fewer than economists projected, and increases in the prior two months were revised down.