Cyprus does not pose a threat to the US economy or financial system and there are no signs of a stock market bubble, according the Fed Chairman Ben Bernanke. The Fed chief told reporters that the central bank was monitoring the situation in Cyprus. The Federal Reserve plans on continuing its monetary policy until it sees more reason to change.
By: Jeff Cox
Wednesday, 20 Mar 2013
Cyprus does not pose a threat to the U.S. economy or financial system and there are no signs of stock market bubble, Fed Chairman Ben Bernanke said on Tuesday.
The Fed chief told reporters that the central bank was monitoring the situation in Cyprus. "At this point, we're not seeing a major risk to the U.S. financial system or the U.S. economy," he said.
Bernanke added, "The only way they'd create a problem is if the runs become contagious in some sense and other countries lost confidence."
And while the cheap money supplied by the Fed has pushed up stock prices, Bernanke said the central bank isn't measuring the success of its policies against moves in stocks.
He also said the recent advance was not out of line with historical patterns. "I don't think it's all that surprising that the stock market would rise given that there has been increased optimism about the economy and... profit increases have been substantial," he said.
With the economic recovery continuing apace and few inflation signs visible, the Federal Reserve is continuing its monetary policy until it sees more reason to change.
That means the U.S. central bank will continue buying $85 billion in debt each month with money it creates and hold interest rates near zero.
"I think the bottom line for the entire day going back to the FOMC statement and the press conference is there's no big shift in the stance of policy," said Stephen Stanley, chief economist at Pierpont Securities. Stanley added that Bernanke also clarified that the Fed would taper off its asset purchases as the economy improves.
This month's meeting indicated little change in mindset, other than a sharper eye toward fiscal policy in Congress.
"Household spending and business fixed investment advanced, and the housing sector has strengthened further, but fiscal policy has become somewhat more restrictive," the FOMC said in the statement.
Since the last meeting, mandatory budget cuts have taken place after Washington's political leaders failed to reach a compromise. The so-called sequestration cuts are expected to dig into the economy as the year progresses, with a substantial round of layoffs on the horizon.
The Open Markets Committee policy statement veered little from the January meeting, indicating that policy will remain as is until until the unemployment rate falls to 6.5 percent and inflation rises to a 2.5 percent growth rate.
"Somewhat of a mixed bag from the Fed in its latest policy statement, with an acknowledgment that economic growth had resumed its earlier momentum while on the other hand recognizing that fiscal policy now stands slightly more restrictive," said Andrew Wilkinson, chief economic strategist at Miller Tabak.
In a news conference following the FOMC release, Fed Chairman Ben Bernanke expressed confidence in the economic recovery.
"The data since our January meeting have been generally consistent with our expectation that the fourth-quarter pause in the recovery would prove temporary and that moderate economic growth would resume," he said.
Economic forecasts submitted in conjunction with the statement were largely in line with previous projections, save for a small dip in the top projections for gross domestic product growth and a slightly lower range for the unemployment rate.
Investors have been watching for indications that the central bank might start curtailing its $85 billion in monthly purchases of Treasurys and mortgage-backed securities.
At the January meeting several committee members raised questions over the unintended costs of the bond-buying program, known as quantitative easing. They suggested that the Fed consider tapering its purchases.
The committee noted that the jobs picture has improved though the unemployment rate remains elevated at 7.7 percent.
Outside the political issues, the Fed expressed the same tepid confidence in the recovery it had expressed in several previous statements.
Bernanke noted there was more discussion about the long-term costs of the asset purchasing program, particularly in terms of ramping up inflation expectations, but said the committee mostly felt the positives outweigh the negatives.
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