By Peter Schroeder - 06/20/13 12:09 AM EDT
Federal Reserve Chairman Ben Bernanke shut down questions about his future Wednesday, days after President Obama suggested he would not be back for a third term.
Bernanke repeatedly told reporters that he would not discuss “personal” matters at his first press conference since Obama’s comments in a Monday interview with PBS’s Charlie Rose.
Instead, Bernanke said he wanted to stay focused on the Fed’s efforts to direct the economy via monetary policy.
The Fed announced Wednesday it would continue buying $85 billion in bonds every month to spur economic growth, though the chairman also began to lay out how the Fed envisions exiting the third round of “quantitative easing.”
Financial traders are anxious about the looming changes in policy and personnel at the Fed. The major stock indexes tumbled after Bernanke’s press conference, with the Dow Jones closing at a loss of more than 200 points.
Bernanke has always demurred when asked about his future plans, but the comments Wednesday were more brusque than usual.
At his last press conference in March, Bernanke said he didn’t have any information to offer on his future with the Fed, but then commented at length about how no single person is critical to the Fed’s current mission.
“I don’t think that I’m the only person in the world who can manage the exit,” he said, adding that the Fed is staffed with “literally dozens” of highly qualified individuals. “There’s no single person who is essential to that,” he said at the time.
On Wednesday, Bernanke said the Fed will gradually reduce the size of its purchases if the economy continues to improve as expected, with the goal of wrapping up purchases by mid-2014.
He added that if all goes according to plan, the purchases will draw to a close with the unemployment rate around 7 percent — though he emphasized that the policy will be adapted to meet any economic surprises.
It could be a while after that before the Fed begins selling its bonds back into the market, Bernanke said. It also is unclear when the Fed might consider raising interest rates, which have hovered near zero ever since the economy went south five years ago.
Most Fed watchers believe Bernanke won’t be around to see the Fed’s exit, with his second term wrapping up at the end of January 2014.
Douglas Elliott, a former investment banker now at the Brookings Institution, said he would be “shocked” if Bernanke stayed on for a third term.
Obama underlined that expectation Monday when he said Bernanke has been on the job “a lot longer than he wanted or was supposed to.”
News that Bernanke will miss this year’s Fed conference in Jackson Hole, Wyo., has only fostered the belief that he is headed out the door.
Bernanke previously used the summer conference to make major monetary policy speeches as it developed into a closely watched event. But on Wednesday, Bernanke dismissed the conference as just one of many held by regional Fed banks, in response to a question about his upcoming absence.
For the time being, Bernanke said he was simply trying to make the Fed’s direction and intentions as clear as possible to the markets.
If these are Bernanke’s final months at the Fed, Elliot said he’ll want to preserve the central bank’s flexibility going forward.
“I don’t think they want to lock themselves in by giving a formula,” Elliott said, given a number of variables with the economy.
“He’s not going to be able to direct it from afar or to lock in a particular approach,” Elliott added.
The Fed doesn’t anticipate hiking near-zero interest rates until unemployment falls below 6.5 percent, but Bernanke emphasized the Fed’s flexibility Wednesday by describing that figure as a “threshold, not a trigger.”
“Our purchases are tied to what’s happening in the economy,” he said. “If it doesn’t come true, we’ll adjust our policies for that.”
Bernanke also used the press conference to again emphasize how the nation’s fiscal policy, crafted by Congress, is weighing on the economy. Bernanke identified Washington fiscal policy as “the main headwind” to the economy, which otherwise was showing signs of health.
“Given that very heavy headwind, the fact that the economy’s still moving ahead at at least a moderate pace is an indication that the underlying factors are improving,” he said.
Fed officials expect the economy will grow between 2.3 and 2.6 percent in 2013, largely the same as they had anticipated in March. But central bank officials are more optimistic about the labor market. In March, Fed officials thought the jobless rate would hit between 7.3 and 7.5 percent in 2013 and fall to between 6.0 and 6.5 percent by 2015. On Wednesday, those expectations were upgraded to 7.2 to 7.3 percent in 2013, and 5.8 to 6.2 percent in 2015.
— Updated at 8:09 p.m.