WASHINGTON (MNI) – The following is a transcript from the ongoing
news conference with Federal Reserve Chairman Ben Bernanke, in which he
comments on MBS reinvestments:
CHAIRMAN BERNANKE: As I have noted and as you are all aware, we are
going to complete the program at the end of the second quarter, $600
billion. We are going to do that pretty much without tapering. We are
just going to let the purchases end. Our view is based on past
experience and based on analysis, the end of the program is unlikely to
have significant effects on financial markets or on the economy. The
reason being that first, just a simple point, that we hope that we have
telegraphed today, we hope that we have communicated what we are
planning to do and the markets have well anticipate the this step. And
you would expect that policy steps which are well anticipated by the
market would have relatively small effects because whatever effects you
have, have been capitalized in the financial markets.
Secondly we subscribe generally to what we call here the stock view
of the effects of securities purchases by which I mean that what matters
primarily for interest rates, stock prices and so on is not the pace of
ongoing purchase, but rather the size of the portfolio that the Federal
Reserve holes. So when we complete the program, as you noted, we are
going to continue to reinvest maturing securities, both treasury and
MBS.
So the amount of securities that we hold will remain approximately
constant. Therefore, we shouldn’t expect any major effect of that. Put
another way, the amount of monetary policy easing should essentially
remain constant going forward from June. At some point, presumably early
in our exit process, we will, I suspect, based on conversations we
have been having around the FOMC table, it is very likely an early step
would be to stop reinvesting all or part of the securities which are
coming in, which are maturing, but take note that step, although
… does constitute a policy tightening.
It would be lowering the size of our balance sheet and therefore
would be expected to essentially tighten financial conditions. That
being said, we therefore have to make that decision based on the
outlook, based on our view of how sustainable the recovery is and what
the condition, the situation is with respect to inflation. So we will
base that decision on the evolving outlook.
** Market News International Washington Bureau: (202) 371-2121 **
[TOPICS: M$U$$$,MMUFE$,MGU$$$,MFU$$$,MT$$$$]