These advanced economies face economic challenges more serious than our own
May 9, 2011
The Federal Reserve said it shouldn't be blamed for higher gas prices
After 97 years, the Federal Reserve held its first press conference. Experts say it marked a turning point for the Fed in its effort to become more open to the public
On the docket was the Fed's controversial second round of quantitative easing -- known as QE2 -- in which it's buying up
1. The Fed is trying to be more transparent.
At times during the press conference, its language was still difficult to parse, but the Fed has come a long way. It wasn't until 1994 that the Fed even began releasing statements about its decisions to raise or lower interest rates. "They're trying to communicate better with the public," says
2. QE2 will end as scheduled.
When the Fed initiated QE2 in November, it said the program would be reviewed on a regular basis and would probably end in June. That end date was cemented on Wednesday.
3. A third round is unlikely.
What happens after June remains up for debate, but there was no mention of plans for a third round of quantitative easing. "The door hasn't completely been shut, but there is certainly not an expectation of QE3 by the Fed at this point," says
But just because the Fed will stop buying new treasuries doesn't mean the process is over. The Fed still has a huge balance sheet full of government securities, and it will have to decide how long to continue reinvesting the proceeds -- or interest payments -- from its prior purchases. "It's going to live on," says
4. Don't blame the Fed for higher oil prices.
Bernanke acknowledged that higher oil prices are becoming a larger concern, but he essentially said the Fed doesn't have any control over the price of gas. "The Fed has pretty consistently maintained that they're not responsible for higher fuel prices," Sorensen says. The Fed has repeatedly called surging gas prices "transitory" -- in other words, a short-term phenomenon. The Fed focuses on core inflation, which strips out food and energy prices. The Fed said its projection for core inflation this year is between 1.3 and 1.6 percent, still below its stated goal of around 2 percent.
5. Don't expect a rate hike soon.
The Fed didn't hint at plans to raise interest rates in the near future. While other nations, like
6. The recovery is here, but it's fragile.
The Fed said the economy is recovering at a "moderate" pace. It lowered its GDP forecast for this year somewhat, from between 3.4 to 3.9 percent to 3.1 to 3.3 percent. The Fed blames the lower projection on a combination of factors, including harsh winter weather and unrest in the
7. The Fed is concerned about the national debt.
When asked about
8. Unemployment will remain relatively high.
The Fed now projects that by the end of 2011, the jobless rate will fall somewhere in between 8.4 percent to 8.7 percent range, down from its prediction of 8.8 percent to 9.0 percent that it made in January. The Fed's estimate for unemployment at the end of 2012 is in a range of 7.6 percent to 7.9 percent, which is still quite high by historical standards.
9. Housing outlook remains bleak.
Home prices continued their eighth consecutive monthly decline in February. The
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