The Daily Reckoning by Bill Bonner
Confusing Gradual Bankruptcy with Economic Recovery
Reckoning today from Baltimore, Maryland...
We have a wintry landscape here in Baltimore...or what is left of one. But forget the weather, happy days are here again.
At least, that is what you might think from reading the newspapers. Unemployment is going down. Consumer debt is going up. Even the housing market is showing signs of improvement.
Gold is rising — investors seem to think inflationary pressures are building. The 10-year T-note yield is back over 2%. And stocks are having their best January in 15 years...
And now, once again, the commentariat is talking about a ‘recovery’ from the Great Recession.
But we’ll give it to you straight, dear reader. There wasn’t any Great Recession and there won’t be a recovery. You don’t recover from what ails the US economy. You die. Then, a new economy can be born.
Still, there are many recovery sightings. But so far, the recovery itself remains as elusive as Bigfoot.
Here’s Bloomberg, with more details:
A decline in unemployment and pickup in manufacturing point to accelerating US growth. Some economists say the numbers may not be as good as they look.
One reason: the severity of the economy’s plunge in late 2008 and early 2009 after Lehman Brothers Holdings Inc. collapsed threw a wrench into models used to smooth the data for seasonal changes, according to analysts at Goldman Sachs Group Inc. and Nomura Securities International Inc.
“The impact of the financial crisis does seem to have affected seasonal factors for several indicators,” Andrew Tilton, a senior economist at Goldman Sachs, said in a telephone interview from New York. It “might tend to make things look a little better in the early winter and look a little worse in the spring time.”
Most economic data are adjusted for seasonal changes to facilitate month-to-month comparisons. Without those changes, for example, construction would always pick up in the summer, when the weather is milder, and decline in the winter.
The adjustment process is unable to distinguish between a one-time shock, like Lehman’s demise, and a recurring issue that would need to be smoothed away. For that reason, the mechanism gives some data a leg up from about September through about March before turning negative the rest of the year.
The economy contracted at an average 7.8 percent annual pace from October 2008 through March 2009, the worst back-to-back quarters in the post World War II era. The 18-month recession ended in June 2009.
The adjustment process “has been knocked out of whack by the financial crisis,” Ellen Zentner, a senior US economist at Nomura in New York, said in a telephone interview. “The model ends up adjusting for a growth pattern that isn’t there. The sudden drop-off in economic activity in late 2008 is not a pattern, it doesn’t happen late every year. It was a one-off event.”
In effect, the models are over-compensating...trying to make sense of the big collapse of ’08-’09 by treating it as though it were a seasonal adjustment issue. If the winter weather were so severe as to cause such a big drop-off, the machines reason, we must move the bar lower next year. Then, even a modest improvement will look spectacular.
But Goldman’s economists estimate that unemployment will average 8.5% this year — almost unchanged from last year. That is not a recovery. And we have to wonder...what will power the ‘recovery’ analysts believe they seem coming?
Not household spending. Households don’t have any money to spend. What then?
Nothing. There will be no recovery. Instead, the US economy is in the process of zombification and ossification...which is what happens when the feds refuse to allow dead-men industries to die.
Ottmar Issing, of the European Central Bank, is on the case:
“The problem of ‘too big to fail’ is that it has made society — more precisely, the taxpayer — hostage to the survival of individual financial institutions...the taxpayers’ billions committed to rescue supposedly systemic institutions has dealt a big blow to confidence in the free market system...and has in turn become a threat to free societies.”
Well, yes. Now, the game is rigged. The fix is in. The zombies are dealt the aces. The rest of us get a bum hand.
But wait...didn’t the US government make a profit from its loans to the banks? Didn’t the banks pay back the money? Didn’t taxpayers come out ahead?
Oh dear reader, please stop...we can’t stop laughing. We’re afraid we might pull a muscle.
Imagine a bartender. He realizes that his customers have been handing out IOUs all over town — including to him. And he also knows his customers can’t pay. People are beginning to wonder...they’re beginning to discount the IOUs. A crisis is coming...
What does he do? He lends the customers more money and buys the IOUs from the other merchants! Naturally, the value of the IOUs goes back up. Because now, holders know they’ll get their money. Even the value of the IOUs owned by the bartender go up. Wonder of wonders, he has even made a profit on the deal!
Happy days are here again.
Which reminds us of Hemingway’s conversation between Bill Gorton and Mike Campbell.
Bill asks; “How did you go bankrupt?”
Mike answers: “Two ways. Gradually. Then, suddenly.”
We’re still in the ‘gradually’ phase. Stay tuned...
Thursday, February 2, 2012
Wednesday, February 1, 2012
Gallup Poll: Financial Worries Are Worst in 2 Decades
MoneyNews.com
By Forrest Jones
Financial worries and unease about the future are the worst since 1991-1992, a Gallup poll finds.
About 51 percent are worried about maintaining their standard of living, 43 percent are worried about being able to pay medical bills, and 34 percent fear they will lose their job, the highest figures in 20 years.
The numbers don't bode well for President Barack Obama.
"Americans' economic anxiety today is most similar to what it was in 1992," Gallup says in a statement.
"The economic angst at that time helped contribute to George H.W. Bush's re-election defeat that year. Far fewer were worried in 2004, when George W. Bush won a second term."
Americans were most worried about the overall economy, with 72 percent fearing it will get worse before improving, followed by outliving their money in retirement, with 57 percent worried over such a possibility.
Some 51 percent were worried about home values not increasing.
Consumer confidence figures have been improving in recently months, though higher fuel prices has threatened to rattle still-frayed nerves.
The Bloomberg Consumer Comfort Index declined to minus 47.4 in the period ended Jan. 15 from a reading of minus 44.7 the prior week thanks in part to rising prices at the pump.
"Consumer sentiment is particularly sensitive to shifts in the price of gasoline," says Joseph Brusuelas, a senior economist at Bloomberg LP in New York, the newswire reports.
"Consumer balance sheets remain stressed due to lackluster wage growth, despite a modest improvement in the labor market."
Confidence Falls as CEOs Prepare for More Shocks
MoneyNews.com
Corporate executives are struggling to find paths to growth as the eurozone crisis stokes fears of a return to recession and developing economies lose momentum.
Leaders of top companies meeting in Davos this week are braced for further shocks in 2012 and, at the personal level, the strains are growing as the backlash over top pay increases at a time of rising unemployment.
This month's stock market rally may have leavened the mood but it has failed to dent the world's growing queue of jobseekers. Worryingly, that coincides with acute skill shortages in parts of the labor market and finding the right talent is a top concern for executives.
"Twelve months ago we were all looking forward to a pretty good 2011," said Manpower Chief Executive Jeff Joerres. "Twelve months later, here we are in a completely different world."
Only 40 percent of chief executives are "very confident" of revenue growth for their companies in the next 12 months, down from 48 percent in 2011, according a PricewaterhouseCoopers (PwC) survey of 1,258 CEOs published on Tuesday.
Even so, business leaders, who are optimists by nature, remain more upbeat than two years ago and are a lot more hopeful for their own firms' prospects than for the wider economy. Just 15 percent expect the global economy to improve in 2012. Nearly half said the economy would falter.
Thirty-four percent said they expected the economy to remain about the same.
After the shocks of last year — Europe's worsening debt and banking crisis, the downgrading of the United States credit rating, the Arab Spring and Japan's earthquake — bosses believe they have learned how to deal with increased volatility.
"There is a sense that we are living in a world where shocks come at us very quickly and we're getting better at living with that," said Joerres.
Big uncertainties for 2012 include increasing tensions over Iran, as well as elections in the United States and France.
The need for selective investment has never been greater and companies are having to look beyond overly simplistic emerging-market versus developed-world plays.
"This is a truly amazing time — volatile, risky, uncertain," said Boston Consulting Group CEO Hans-Paul Buerkner.
The growing importance of emerging markets will once again dominate discussions between 2,600 of the world's business and political elite meeting at the World Economic Forum this week.
Advanced economies are likely to expand just 1.4 percent in 2012 while developing economies should still grow 5.4 percent, according to the World Bank.
It is a shift that PwC Chairman Dennis Nally describes as "the great rebalancing." Yet the trend hides complexity. Significantly, World Bank forecasts for both advanced and developing economies have been revised down from last June's levels of 2.7 percent and 6.2 percent, respectively.
Corporate gloom is deepest in Western Europe, yet Germany remains a bright spot, with the ZEW monthly poll of economic sentiment posting its biggest ever rise in January. In China and India, meanwhile, only just over half of CEOs are still "very confident," down from 72 and 88 percent a year ago, according to the PwC survey conducted in the last quarter of 2011.
"Some of the biggest dips in confidence levels are actually coming out of emerging markets, which I think confirms how connected economies are," said Nally.
$4.2 TRILLION OF CASH
Companies' response to tough times is to manage operations with ever greater efficiencies and keep a tight rein on cash.
Worldwide, corporates now hold $4.2 trillion in cash, up 5 percent from a year earlier and much more than is needed for liquidity purposes, according to estimates from Citi this month.
Mark Spelman, Accenture's global head of strategy, believes companies are seriously concerned about the credit situation and recent pressures in the banking sector, particularly in Europe, which is likely to keep mergers and acquisitions subdued.
"Companies are not going to go out there and have exposed cash positions when they know that the big commercial banks are under a lot of pressure," he said.
The cautious approach, particularly in developed economies, provides no obvious relief to the labor market and the world's unemployed, who now number more than 200 million, according to the International Labor Organization.
Yet one of the worrying quirks of the current environment is how global corporations continue to bemoan their inability to hire the right skilled workers, whether they be gifted computer programmers, master welders or talented middle managers.
The sluggish economy may actually be aggravating the problem, according to Manpower's Joerres, as senior managers opt to wait to find just the right match for job openings, saving money on the monthly payroll in the meantime.
The strains of the corner office, meanwhile, are building and the credibility of CEOs has slumped 12 points to 38 percent in the past 12 months, the biggest drop in nine years, according to an annual poll on trust by Edelman released in Davos.
The pressures are greatest for those bosses facing the biggest business challenges. A thick skin may be a prerequisite but there have been some high-profile casualties.
Antonio Horta-Osorio, CEO of Lloyds Banking Group, took a leave of absence from the bank in November to recover from fatigue, while Jeff Kindler of drugs giant Pfizer resigned just over a year ago to "recharge my batteries".
Jennifer Wild, a clinical psychologist at King's College London, who has been researching the cumulative effect of stress, thinks the problem gets scant attention, partly because of the tough economic backdrop
"We're not at the point now where we're thinking more culturally about making the workplace healthier," she said.
Tuesday, January 31, 2012
Markell promises boost for small business
Delaware Online by Chad Livengood
DOVER — Delaware will become the first state to partner with Facebook to foster growth in small businesses, Gov. Jack Markell said today in his annual State of the State address.
“This partnership will help our small businesses fully engage the powerful use of social media to market their products and services more effectively,” Markell told a joint session of the General Assembly gathered in the House chamber.
The first-term Democratic governor did not give specifics about the partnership. But it was part of a theme in Markell’s message of focusing on boosting small businesses and entrepreneurs after devoting a lot of time and taxpayers resources in recent years toward helping big businesses get through the recession.
Markell used the annual address to call on lawmakers to build on their past accomplishments and do more to foster job-creation, improve public schools and make government more transparent and cost-effective.
While Markell has recently been vocal about reining in Medicaid costs, the governor was more restrained in specific ways to trim costs from the $600 million program that provides health care to more than 200,000 poor and disabled Delawareans. He demanded better results from the current Medicaid system.
“The expectation is that year after year we will continue to pay more for health care, whether we receive quality results or not,” Markell said.
The governor said his administration has “quietly” made progress in addressing costs. On April 1, seniors getting long-term care in a state institutional facility will be moved into community-based facilities, Markell said.
Markell said his administration will create a database of Medicaid claims and costs to further scrutinize the escalating budget expense.
“This database will allow us to figure out why some providers get better results and why some providers create more costs without better results to show for it,” Markell told lawmakers, who have resisted instituting copays. “We will be in a position to reward what works and change what doesn’t.
The governor called on the General Assembly to pass legislation requiring Legislative Hall lobbyists to disclose which bills they’re lobbying on. Currently, lawmakers have to publicly disclose their clients.
“Citizens deserve to know who is lobbying and what they are lobbying for,” Markell said in prepared remarks. “The trust of people in their state government should not be undermined by a perception that lobbyists have hidden access here in Dover.”
Markell also called for making state government campuses entirely smoke-free. “Otherwise, we are facilitating behavior that is not only harmful to those who engage in it, but that we know, with certainty, will heavily burden future generations of taxpayers,” Markell said.
The governor also sought to portray Delaware’s politicians as more bipartisan than the rhetoric that has deeply divided Democrats and Republicans in Congress and statehouses in Columbus, Ohio and Madison, Wisc.
“At a moment when Washington, D.C., stands for deadlock and dysfunction, Delaware’s strength resides in the capacity of its people, even in challenging times, to work with common purpose, to choose perseverance in place of pettiness and partisanship,” Markell said.
Markell submits $3.54 billion spending plan
Delaware Online by Doug Denison
DOVER – Gov. Jack Markell sent legislators a $3.54 billion spending plan today that accounts for growth in public schools and in the number of Delawareans who depend on the government for health care.
The proposed operating budget fills a $27.4 million gap in school operations spending that was expected to begin in the next school year after one-time federal stimulus funding dried up.
“This was the schools’ No. 1 priority,” said Ann Visalli, director of the Office of Management and Budget.
The budget plan pays for hiring 111 new teachers at a cost of $8.7 million to account for projected growth in public school enrollment next year.
Markell, who is up for re-election this year, proposes no tax or fee increases to pay for a 1 percent increase in spending in the 2013 fiscal year, which begins July 1.
“We believe this budget reflects responsible governing as well,” Markell told reporters.
Medicaid program administrators assume enrollment for the health insurance program for the poor and disabled will grow by 20,000 during the next fiscal year to 234,000 – or one in four Delawareans.
Markell has budgeted $21.7 million extra for Medicaid next year, but he proposed no specific cuts to the program. The increased spending assumes the Department of Health and Social Services will find some internal ways to contain costs, Visalli said.
Last year, the governor’s proposal to trim $5 million from Medicaid was rejected by lawmakers, who enjoyed a short-lived spending spree at the time thanks to a temporary spike in tax and unclaimed-property revenue.
Markell’s proposed budget continues to fund education-related programs that have been his priorities in the past. The spending plan includes $3.5 million more for early childhood and day care programs, up from $22 million that Markell and the Legislature added to programs last year when additional revenue came on the table.
The governor does propose spending cuts throughout state government next year, Visalli said.
But a budget presentation given to reporters in advance of Markell’s 1 p.m. public unveiling of the plan made no mention of actual cuts, unlike past briefings.
Some of the reduced spending were one-time expenditures, Visalli said, such as a $54 million added expense this fiscal year for a rare 27th pay week for state workers. With the calendar returning to 26 paydays next fiscal year, that gave the governor more room to spend. Other areas did not get fully funded to the levels that agencies or special interest groups requested, Visalli said. Programs that preserve farmland and open space by purchasing development rights got $4 million in Markell’s capital budget, though the programs were funded at $20 million this year, Visalli said. Last year, Markell and lawmakers poured tens of millions of surplus funds into one-time initiatives with hopes of spurring job creation and the state’s stagnant economy. The Legislature created a new $55 million fund to pay for infrastructure improvements for economic development projects. Last month, a state committee awarded the first $4 million grant to Amazon.com to extend or improve two roads leading up to a regional fulfillment center the online retail giant plans to build in west Middletown. Markell’s capital improvements budget in the Bond Bill does not include any new money for the New Jobs Infrastructure Fund. But if spring tax collections beat projections, it could be a program that gets more money. “Hopefully, depending on how things progress in the spring, we’ll be able to do that,” Visalli told reporters. The governor has also proposed a $30 million boost to the state’s Strategic Fund, which is used to attract businesses to the state with tax breaks, loans and grants. Last year’s Strategic Fund appropriation was $31 million. On Tuesday, the budget-writing Joint Finance Committee will begin six weeks of hearings on the governor’s spending proposal.
Monday, January 30, 2012
Angela Merkel casts doubt on saving Greece from financial meltdown
The Guardian by Ian Traynor
View Original Article HERE
Angela Merkel, the German chancellor, said efforts by the international community to stabilise the situation in Greece had not worked. Photograph: Michael Sohn/AP
Angela Merkel has cast doubt for the first time on Europe's chances of saving Greece from financial meltdown and sovereign default, conceding that Europe's first ever multibillion euro bailout coupled with savage austerity was not working after a two-year crisis that has brought the single currency to the brink of unravelling.
In an interview with the Guardian and five other leading European newspapers, the German chancellor also insisted – against widespread resistance elsewhere in the eurozone and in the UK – that the European court of justice (ECJ) be empowered to police public spending and budget policies of the 17 countries in the euro.
She also called for the eventual creation of a European political union, with many more national powers ceded to a central government, a strengthened bicameral European parliament, and the ECJ assuming the role of Europe's supreme court.
Days before the latest EU summit, which, at Merkel's insistence and evoking scant enthusiasm elsewhere, is to finalise an international treaty between eurozone governments entrenching German-style fiscal and budgetary rigour in all single currency countries, the chancellor admitted having doubts about the strategy she had pursued during the crisis.
"We haven't overcome the crisis yet. Of course, there's Greece, a special case where, despite all the efforts that have been made, neither the Greeks themselves nor the international community have yet managed to stabilise the situation."
Asked about the European response over the past two years, during which Berlin has often dictated terms and encountered strong resistance in Brussels, Paris, and at the European Central Bank in Frankfurt, Merkel said: "Good politicians always have doubts, as a way of constantly reviewing whether they are on the right track." There were no doubts about her aim – to save the euro and preserve the EU. The reservations concerned the means to those ends.
With Europe's biggest ever crisis moving into its third year, the chancellor is facing growing resistance to her key aim at Monday's summit – finalising the "fiscal compact" treaty that is the euro's new rulebook, foreseeing quasi-automatic fines for fiscal sinners, empowering the Luxembourg-based ECJ to sit in judgment of the 17 countries' budgets, and establishing legally binding debt ceilings for eurozone governments.
The treaty would enshrine the German model of fiscal and monetarist rigour as binding on the eurozone, in a move that would, in effect, outlaw Keynesian economics.
As global leaders gathered on Wednesday in Davos, Switzerland for their annual deliberations on the world economy, Merkel, delivering the keynote opening speech, sought to shift the debate away from pervasive austerity and spending cuts to promoting growth and jobs, suggesting that labour laws across the EU might be more closely coordinated.
But the prospects for growth in Europe appear abstract and the gloom was deepened by official British figures showing a 0.2% contraction in the UK economy in the last quarter of 2011, pointing the way to the second British recession in three years. Criticism of the pact and the Merkel policy is getting louder. "A lot of time and energy wasted for nothing," Luxembourg's foreign minister, Jean Asselborn, told Der Spiegel this week. "Issues which have more to do with Germany than with Europe are playing an important role." Last week, a Finnish cabinet minister also attacked the treaty as having more to do with German domestic politics than with saving the euro.
But Berlin looks certain to get its way since it says no new permanent euro bailout fund will be established a year early in July without agreement on the treaty.
Opponents say the pact will do little to stem the immediate crisis. The Germans insist in the medium term it will prevent a repeat of the profligacy that caused the near-collapse in the first place.
"There would be no point in promising more and more money without tackling the causes of the crisis," said Merkel. "Amid all the billions in financial assistance and rescue packages, we Germans also need to watch that we don't run out of steam. After all, our capacities aren't infinite, and overstretching ourselves wouldn't help us or the EU as a whole.
"We will only be able to strengthen our common currency if we co-ordinate our policies more closely and are prepared to gradually give up more powers to the EU. If we make loads of promises about debt reduction and sound budgeting, those need to be things that can be enforced or brought to court in the future. The point of the fiscal compact, after all, is to make it possible to check on those commitments. That means giving our [European] institutions more monitoring rights – and more bite."
Merkel again ruled out pooling eurozone debt – eurobonds – as a quick fix to the crisis, but left the option open should the new euro regime produce results.
"Shared liability is something we will only be able to contemplate once the EU has achieved much greater integration. It will not do as a means to resolve this crisis. That greater integration would involve the European court of justice enforcing controls for national budgets, for example, and much more besides. If we at some point have harmonised our financial and budgetary policy, that will be the time to try and find other forms of co-operation and shared liability."
The new pact is an international treaty between participating governments and not European legislation because David Cameron last month took the highly unusual step of vetoing an EU-wide deal.
Despite the prime minister's blockade and the belief in Berlin that he blundered, Merkel sounded conciliatory.
"I am convinced that Great Britain wants to remain a member of the European Union. Of course, it's never easy for 27 states to hold together … We need to find that balance with everyone time and again, including the United Kingdom wherever possible."
On her "vision" for the future of the EU, though, there is unlikely to be any "balance" struck with No 10 because Merkel's hopes for a Europe united politically under a single government are at odds with Britain's views. Besides, Merkel's project would require substantial transfers of powers to Brussels that would run foul of Cameron's EU referendum law.
"My vision is one of political union because Europe needs to forge its own unique path. We need to become incrementally closer and closer, in all policy areas," the chancellor said. "Over a long process, we will transfer more powers to the [European] Commission, which will then handle what falls within the European remit like a government of Europe. That will require a strong parliament. A kind of second chamber, if you like, will be the council comprising the heads of [national] government."
"And finally, the supreme court will be the European court of justice. That could be what Europe's political union looks like in the future – some time in the future, as I say, and after a goodly number of interim stages."
There was no immediate reaction to Merkel's interview from Cameron.
Stefan Kornelius of Süddeutsche Zeitung, Javier Moreno of El País and Bartosz Wielinski of Gazeta Wyborcza contributed to this report
Fed Signals That a Full Recovery Is Years Away
The New York Times by Binyamin Appelbaum
View Original Article HERE
WASHINGTON — The Federal Reserve, declaring that the economy would need help for years to come, said Wednesday it would extend by 18 months the period that it plans to hold down interest rates in an effort to spur growth.
The Fed said that it now planned to keep short-term interest rates near zero until late 2014, continuing the transformation of a policy that began as shock therapy in the winter of 2008 into a six-year campaign to increase spending by rewarding borrowers and punishing savers.
The economy expanded “moderately” in recent weeks, the Fed said in a statement released after a two-day meeting of its policy-making committee, but jobs were still scarce, the housing sector remained deeply depressed and Europe’s flirtation with crisis could undermine the nascent domestic recovery.
The Fed forecast growth of up to 2.7 percent this year, up to 3.2 percent next year and up to 4 percent in 2014, but at the end of that period, the central bank projected that the recovery would still be incomplete. Workers would still be looking for jobs, and businesses would still be looking for customers.
“What did we learn today? Things are bad, and they’re not improving at the rate that they want them to improve,” said Kevin Logan, chief United States economist at HSBC. “That’s what they concluded — ‘We’ve eased policy a lot, but we haven’t eased it enough.’ ”
The economic impact of the low-interest rate extension, however, is likely to be modest. Many businesses and consumers can’t qualify for loans, a problem the Fed’s efforts do not address. Moreover, long-term rates already are at record low levels and, like pushing on a spring, the going gets harder as it nears the floor. Finally, the Fed already was widely expected by investors to hold rates near zero well into 2014, limiting the benefits of a formal announcement.
“I wouldn’t overstate the Fed’s ability to massively change expectations through its statements,” the Fed’s chairman, Ben S. Bernanke, said at a press conference Wednesday after the announcement. “It’s important for us to say what we think and it’s important for us to provide the right amount of stimulus to help the economy recover from its currently underutilized condition.”
The Fed’s plans for interest rates were unveiled amid a barrage of statements the central bank released Wednesday as part of its campaign to improve its transparency. And while it pleased some investors in the markets, it left others befuddled. The Dow Jones industrial average, which had been down in the morning, began rising steadily after the Fed released its statement at about 12:30 p.m. Wednesday. The Dow finished the day up 81.21 points at 12,756.96.
First came the Fed’s traditional statement, released after each meeting of its policy-making committee, which said that the central bank intended to hold short-term rates near zero “at least through late 2014.”
Ninety minutes later, the Fed published for the first time the predictions of the committee’s members on when they would raise interest rates. It showed that 11 of the 17 members expected the Fed to raise rates by the end of 2014. Taken together, the documents suggested that the Fed expected to keep rates near zero until late 2014, but probably not any longer than that.
Since the beginning of the financial crisis in 2007, the Fed has alternated bursts of activity with periods of rest, concluding several times that it had done enough only to find the economy still struggling to recover. The Fed announced last summer that the central bank intended to keep interest rates near zero through at least the middle of 2013, and that it would seek to reduce long-term interest rates through changes in the kinds of investment securities it holds. Since then, two meetings had passed without the introduction of any new programs.
The Fed’s latest action came after a run of better-than-expected economic data, suggesting to some analysts that the pace of growth might begin to rise without any further help. The Fed also is under relentless assault from Republican presidential candidates who have said that its policies are doing little good and will eventually spur inflation.
And there is growing criticism that the Fed’s policies are unfairly taking money from savers, including many seniors who planned their retirements around the interest rates that low-risk assets like bank deposits used to pay.
Mr. Bernanke said Wednesday that the Fed was aware of this, but it was acting again because it still did not believe that it has done enough. At the same time, he suggested that the Fed was not on the verge of more drastic measures, like further expanding its portfolio of mortgage-backed securities.
Such purchases remain under consideration, Mr. Bernanke said, but only “if we see that the recovery is faltering or if we see that inflation is not moving towards target.”
As part of its transparency campaign, the Fed also published Wednesday a statement of its long-term goals, formalizing its longstanding commitment to maintain inflation at about 2 percent a year. The Fed also said that it was equally committed to minimizing unemployment, but that its exact goal would vary based on economic circumstances. It said the goal now was to reduce unemployment below 6 percent.
The new forecast showed that the Fed expects to hit its inflation target over the next three years, but to fall well short of its goals for unemployment. The Fed projected that unemployment would drop no lower than 8.2 percent this year, just slightly below the current rate of 8.5 percent, and no lower than 7.4 percent by the end of next year. By the end of 2014, the Fed still expects that at least 6.7 percent of people actively interested in working would not be able to find jobs.
In light of those projections, it was unclear why so many members of the policy-making committee expected to raise interest rates by the end of 2014.
Asked why the committee would seek to raise rates in such a situation, Mr. Bernanke said that he did not imagine it would.
“We’re certainly willing to look for different ways to provide further support for the economy if in fact we have this unsatisfactory situation,” he said.
As for the forecasts, he said, “there is no mechanical relationship between these projections” and the committee’s decisions.
Some analysts cautioned that the Fed’s statements and predictions were being given too much weight.
“Here’s what all Fed promises are worth: nothing, if the data tell them to do something different,” said Ian Shepherdson, chief United States economist at High Frequency Economics.
Furthermore, Mr. Bernanke’s Fed is now making projections about decisions that could be made under the leadership of someone else. Mr. Bernanke’s current term ends in early 2014.
“I wouldn’t feel bound by anything the previous chairman had done,” Mr. Shepherdson said. “And three years is a very, very long time.”
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