WASHINGTON (MNI) – Following are excerpts of the transcript from
Federal Reserve Chairman Ben Bernanke’s press conference:
QUESTION FROM MNI:
There’s been concern in markets about what will happen to bond
yields at the expiration of operation twist on June 30th. And some
speculation on what the Fed might do, might need to do, to keep downward
pressure on yields. Is that a concern that you share and do you and your
colleagues feel the need not to disappointment these kinds of market
expectations?
ANSWER
Well, to your last point, the purpose of monetary policy is to
achieve our objectives of maximum employment and price stability. It’s
not to disappointment or not disappointment investors. So we will take
actions based on those economic objectives and not to try to achieve
certain market outcomes.
There’s some disagreement, I think, about exactly how balance sheet
actions by the Federal Reserve affect Treasury yields and other asset
prices.
The view we have generally taken at the Fed — and I think the
evidence is pretty good — is that it’s the quantity of securities held
by the Fed at a given time, rather than the new purchases, the flow of
new purchases, which is the primary determininant of interest rates. And
if that theory is correct, then at such time that our purchases come to
an end, there should be relatively minimal effects on interest rates at
that time.
And that, in fact, has been generally our experience in previous
episodes where we have launched a program and then allowed it to come to
a natural end.
Of course, we’ll continue to monitor the situation and if we
believe that financial conditions, for whatever reason, are inconsistent
with our macroeconomic objectives, then we will act to fix that. But,
again, our expectation is that at whatever point that the purchases end,
that financial markets being quite forward-looking, will have
anticipated that and the effects ought be moderate.
** MNI Washington Bureau: 202-371-2121 **
[TOPICS: M$U$$$,MMUFE$,MGU$$$,MFU$$$]