Bernanke To Re-shape Thinking At The First FOMC Press Briefing

The April FOMC meeting will unlikely contain any surprise in monetary policies, i.e. the Fed funds rate will stay a 0-0.25% and the asset-buying program will be maintained at $600B with expiry in June. The focus is on the first post-meeting press briefing at which Chairman Ben Bernanke will attempt to shape market expectations on inflation and monetary outlook. The briefings will be held 4 times a year and are scheduled to coincide with the updates of economic forecasts.

 

In this first press briefing, Chairman Bernanke will likely reaffirm the stance that the Fed will maintain interest rates at exceptionally low levels for an extended period of time. We have heard divided opinions among hawks and doves within the Committee in recent months. Indeed, arguments on growth were mild with the majority believing the US will record modest economic growth this year. Concerning monetary policies, it’s unveiled in the March minutes that ‘a few participants’ favored a move toward ‘less-accommodative monetary policy this year’ while ‘a few others’ believed ‘exceptional policy accommodation could be appropriate beyond 2011’. Currently, no one has argued for extending quantitative easing measures.

 

What generated the most rigorous debates was inflation outlook. As mentioned in the January minutes, the dispersion in the participants’ inflation forecasts was a result of ’differences in judgments regarding the fundamental determinants of inflation, including estimates of the degree of resource slack and the extent to which such slack influences inflation outcomes and expectations as well as estimates of how the stance of monetary policy may influence inflation expectations’.

 

We expect the Chairman to clarify the Fed’s consensus views to the above-mentioned issues in his first press briefing. For instance, he may state that both employment and inflation have fallen short of the Fed’ dual mandate and therefore maintenance of accommodative policies is appropriate. Moreover, the increase in inflation was expected to be ‘mostly transitory’ if oil and other commodity prices do not rise significantly further. Policymakers do not view it’s justifiable to tighten monetary policy at the current stage as it may hurt economic recovery. The Chairman will reiterate the Fed’s objectives of maximum employment and price stability.