How Russia's central bank chief held the line
MOSCOW One Thursday evening in March, Elvira Nabiullina, governor of Russia's central bank, faced down a rival in the struggle for influence inside President Vladimir Putin’s entourage.
WASHINGTON Below are highlights from Federal Reserve Chairman Ben Bernanke's news conference following the Fed's policy announcement on Wednesday that the central bank would begin to trim its aggressive bond buying program.
ON THE FED'S RESPONSE TO THE CRISIS:
"We were slow to recognize the crisis, I was slow to recognize the crisis....Whether or not we could have prevented it or done more about it, that is another question. By the time I became Chairman it was already 2006 and house prices were already declining. Most of the mortgages had been made but obviously it would have been good to have recognized that early and tried to take more preventive action. That being said, we have done everything we can think of essentially to strengthen the Fed's ability to monitor the financial markets, to take actions to stabilize the economy and the financial system. So I think going forward we are much better prepared to deal with these kind of events than we were when I became chairman in 2006."
ON FED INDEPENDENCE:
"It is important that we maintain our policy independence in order to be able to make decisions without short-term political interference. At the same time, it is up to Congress to set our structure, to set our mandate, and that is entirely legitimate, and we need to go and explain ourselves, we need to explain why certain approaches are not so good or might be better.
"That being said....we are highly respected among central bankers and other policymakers around the world, and so I hope when they do review the Fed - if that is what they do - that they rely on expertise and highly qualified individuals who know the ins and outs of central banking and monetary policy, which are not simple matters."
ON BANK STRESS TESTS:
"One of the main innovations, which I am very pleased with, is the use of stress testing to try to see whether banks have enough capital not only to deal with normal fluctuations but to deal with a very severe combination of a sharp downturn in the economy and very bad financial conditions. I think that has been a very important test both of banks' abilities to survive a bad situation but also their abilities to measure their risks, which was something that was very deficient going into the crisis."
ON ASSET BUBBLES:
"We look at the possibility that asset purchases have led to a bubbly pricing in certain markets or in excessive leverage or excessive risk-taking. We don't think that that has happened to an extent which is a danger to the system, except...that when those positions unwind like we saw over the summer, they can create some bumpiness in interest rate markets in particular.
"Our general philosophy is that, where we can, we try to address it first and foremost by making sure the banking system and financial system are as strong as possible. If banks have a lot of capital, they can withstand losses, for example."
BERNANKE ON UNEMPLOYMENT BENEFITS:
"The effects of ending extended unemployment benefits quantitatively for the economy overall are probably not very large because they work in two directions. On the one hand, by putting the benefits into the system you are providing additional income. That income is spent, people receiving unemployment benefits obviously tend to spend a very high fraction of their income. That is a positive for growth. On the other side, it probably some folks who can no longer qualify for unemployment benefits will just drop out of the labor force and that will bring the unemployment rate down but for some sense the wrong reason. So overall it will have -- it could have a very small effect on the measured unemployment rate. But again I think that issue needs to be discussed more in terms of the impact on those most directly affected rather than on the overall economy."
ON DECLINING LABOR FORCE PARTICIPATION RATE:
"The Fed can address that to some extent. If we are able to get the economy closer to full employment, then some people who are discouraged or who have been unemployed for a long time may find that they have opportunities to rejoin the labor market.
"But I think, fundamentally, that training our workforce to fit the needs of 21st century industry in the world that we have today is the job of both the private educational sector and the government educational sector. We have many strengths in our educational sector, including outstanding universities but we have a lot of weaknesses, as you know."
ON HEADWINDS CREATED BY TIGHT FISCAL POLICY:
"People don't appreciate how tight fiscal policy has been. At this stage in the last recession, which was a much milder recession, state, local and federal governments had hired 400,000 additional workers from the trough of the recession. At the same point in this recovery the change in state, local and federal government workers is minus 600,000. So there is about a million workers difference in how many people have been employed at all levels of government."
"Fiscal policy has been tight. There's been a lot of head winds. All that being said, we have been disappointed in the pace of growth and we don't fully understand why. Some of it may be a slower pace of underlying potential at least temporarily and productivity has been disappointing. It may be some bad luck, for example, the effects of the European crisis and the like."
ON U.S. FISCAL POLICY:
"Of course, there is a lot more work to be done. But it is certainly a better situation than we had in September and October or in January during the fiscal cliff for that matter. And I think it will be good for confidence (if) congressional leaders work together, even if the outcomes are small as this one was. It is a good thing that they are working cooperatively and making some progress."
ON THRESHOLDS AND FED GUIDANCE:
"I wouldn't expect any changes in the very near term. We want to see how much accommodation we have and whether it is sufficient, whether the economy is continuing to grow and inflation is moving back towards target as we anticipate. But there are things we can do. We can strengthen the guidance in various ways and while the view of the committee was that the best way forward today was in this more qualitative approach, which incorporates elements both of the unemployment threshold and the inflation floor, that further strengthening would be possible and it's something that has certainly not been ruled out."
ON THE FED'S BALANCE SHEET:
"I do want to reiterate this is not intended to be a tightening. We don't think there's an inflation problem or anything like that. On the one hand, asset purchases are still going to be continuing. We are still going to be building our balance sheet. And now we have also clarified our guidance that we will be keeping rates low well past unemployment of 6.5 percent.
"The actions today are intended to keep the level of accommodation the same overall and to push the economy forward."
"If inflation does not show signs of returning to target, we will take appropriate action."
ON WHY INFLATION LIKELY TO RISE:
"We do think that inflation will gradually move back to 2 percent. Let me give you the case for why inflation might rise. First there are some special factors such as health care costs and some other things that have been unusually low and might be reversed. Secondly if you look at the fundamentals for inflation including inflation expectations that are measured by financial markets or surveys; if you look at growth which we now anticipate will be picking up both in the U.S. and internationally; if you look at wages which had been growing 2 percent and a little bit higher according to many indicators, all of these things suggest that inflation will gradually pick up."
ON COMMITMENT TO RETURNING INFLATION TO TARGET:
"Inflation cannot be picked up and moved where you want it. It requires, obviously, some luck and some good policy. But we are very committed to making sure that inflation does not stay too low, and we are continuing to monitor that very carefully and to take whatever action is necessary to achieve that...
"It's difficult to get inflation to move quickly to target."
ON STAYING DATA DEPENDENT:
"On the first issue of $10 billion, again we say we are going to take further modest steps subsequently so that would be the general range but again I want to emphasize that we are going to be data dependent. We could stop purchases if the economy disappoints, we could pick them up somewhat if the economy is stronger."
ON DECIDING HOW MUCH TREASURIES, MBS TO TAPER:
"In terms of MBS versus Treasuries, we discussed that issue. I think that the general sense of the committee was that equal reductions or approximately equal reductions was the simpler way to do this. It honestly doesn't make a great deal of difference in the end how much we hold. So that was going to be our strategy."
ON THE UNEMPLOYMENT THRESHOLD:
"The unemployment rate is a good indicator of the labor market. It is probably the best single indicator that we have and so we were comfortable setting a 6.5 percent unemployment rate as the point at which we would begin to look at a more broad set of labor market indicators. However, precisely because we don't want to look just at the unemployment rate we want to, once we get to 6.5 percent, we want to look at hiring, quits, vacancies participation, long-term unemployment etc., wages. We couldn't put it in terms of another unemployment rate level specifically."
ON FED DEPUTY CHAIR JANET YELLEN:
"I have always consulted closely with Janet even well before she was named by the president and I consulted closely with her on these decisions as well. And she fully supports what we did today."
ON HOW THRESHOLDS ARE NOT TRIGGERS:
"We have emphasized that these numbers are thresholds not triggers, meaning that crossing the threshold would not lead automatically to an increase in the federal funds rate but would indicate only that it was appropriate for the committee to consider whether the broader economic outlook justified such an increase. With many FOMC participants now projecting that the 6.5-percent unemployment threshold will be reached by the end of 2014, the committee decided to provide additional information about how it expects its policies to evolve after the threshold is crossed."
ON FURTHER REDUCTIONS IN BOND BUYING:
"If incoming information supports the committee's expectation of further progress toward its objectives, the committee is likely to reduce the pace of monthly purchases in further measured steps in future meetings. However, the process will be deliberate and data-dependent. Asset purchases are not on a preset course."
ON PACE OF FUTURE TAPERING:
"If we are making progress in terms of inflation and continued job gains....I imagine we will continue to do probably at each meeting a measured reduction. That would take us to late in the year, certainly not by the middle of the year. If the economy slows for some reason or we are disappointed in the outcomes, we could skip a meeting or two. On the other side, if things really pick up and, of course, we could go a bit faster, but my expectation is for similar moderate steps going forward throughout most of 2014."
ON DECISION TO TAPER BOND PURCHASES:
"Today's policy actions reflect the committee's assessment that the economy is continuing to make progress but that it also has much farther to travel before conditions can be judged normal. Notably despite significant fiscal headwinds, the economy has been expanding at a moderate pace and we expect that growth will pick up somewhat in the coming quarters helped by highly accommodative monetary policy and waning fiscal drag."
ON ECONOMY'S LONG ROAD TO RECOVERY, LOW INFLATION:
"The recovery clearly remains far from complete with unemployment still elevated, with both underemployment and long-term unemployment still major concerns. We have also seen ongoing declines in the labor force participation, which likely reflects not only longer-term influences such as the aging of the population but also discouragement on the part of potential workers. Inflation has been running below the committee's longer run objective of 2 percent. The committee recognizes that inflation persistently below its objective could pose risks to economic performance and is monitoring inflation developments carefully for evidence that inflation will move back towards its objective over time."
SAN FRANCISCO The split at the Federal Reserve over when to next raise interest rates appears to hinge largely on disagreements over the labour market outlook, comments from policymakers on Friday suggest.
MADRID An EU court ruling defending the right of temporary workers in Spain to receive severance pay is fuelling calls from Spanish unions and politicians for one of Europe's most uneven labour markets to be fixed.