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Fed Chief Bernanke Holds First Press Conference (LIVEBLOG, UPDATES)

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Federal Reserve chairman Ben Bernanke will hold his first ever press conference later today -- and the financial world is hanging on his every word. Facing high unemployment, concerns about a stalled recovery, inflation and the housing market, Bernanke's decision to speak publicly has been seen by many as "high stakes gamble" intended to lift the veil of secrecy from the Fed. Check back here for regular updates, video and analysis.

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Moments after Ben Bernanke concluded his first-ever press conference, the Washington Post's Ezra Klein published his version of what the Federal Reserve chairman should have said to the media.

Klein's proposed response leans heavily on admitting past mistakes while honestly assessing the present situation, rather than offering firm policy guidelines within the approved responsibilities of the Federal Reserve. "I have a lot of power," Klein says Bernanke should have said. "But I'm not a dictator."

In Klein's alternative reality, Bernanke takes responsibility for "not doing enough" to counteract a stubbornly high unemployment rate that has left millions "suffering unnecessarily." Klein then rails against Congress for extending Bush-era tax cuts to America's wealthiest citizens.

"[I]n conclusion, the economy is terrible, we should be doing more, and Congress should be doing much more," Klein writes for Bernanke. "[B]ut instead we’re going to pretend the economy isn’t that bad."

Read the whole thing here.

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Stocks ended the day up, after the Fed's press conference. The S&P 500 rose 0.62 percent, and the Dow went up 0.76 percent.

Bernanke signaled the Fed would take its asset-purchased program to completion, and would keep the main interest rate where it is for at least several more months. These policies lower interest rates throughout the economy, making relatively high-yield assets like stocks or corporate bonds more attractive.

—William Alden

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When discussing the recent run-up in gas prices, Bernanke did not mention the word speculation. There is no question that unrest in the Middle East has contributed to higher prices at the pump, but Bernanke didn't address the idea that Wall Street bets in the commodity markets has contributing to to higher fuel prices.

The Commodities Futures Trading Commission and Goldman Sachs have both said there are more speculative bets being placed on commodities right now than at any time in history. It’s possible that this is merely a coincidence, of course, but at least one major Wall Street bank thinks that speculation is driving up prices.

Read more about the link between commodity speculation and gas prices

Bernanke made similar comments when gas prices eclipsed .00 a gallon in 2008. At that time, the global supply of oil had increased, while the global demand for oil had decreased, according to the U.S. Department of Energy. But, despite a fundemental situation that would suggest lower prices, prices were flying high.

After the price of oil broke 7 a barrel in June 2008, the price plunged abruptly, eventually falling below a barrel by the end of the year. Those wild swings prompted a host of economic studies that found speculation was at least contributing to price volatility, if not causing it outright. -- Zach Carter

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Bernanke's argument about inflation isn't consistent, economist Paul Krugman says.

The Fed's asset-purchase strategy is partially intended to promote maximum unemployment, but some experts are concerned that it will ultimately spark inflation once the recovery takes hold and the system remains awash in liquidity. In this view, there's a tradeoff between jobs and prices.

Bernanke, however, doesn't take this view: He said in the press conference that core inflation, or, as Krugman says, "inflation inertia," isn't a concern -- and that expansionary monetary policy doesn't stoke these forces.

But then, Bernanke is also saying that any further expansion would risk provoking inflation, Krugman notes. He continues:

This doesn’t make any sense in terms of his own expressed economic framework. I think the only way to read it is to say that he has been intimidated by the inflationistas, and is looking for excuses not to act.

— William Alden

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In response to a question about the decision to institute press conferences themselves, Bernanke asserted that the Federal Reserve has become a "very transparent central bank."

"I've personally always been a believer in providing as much information as you can," Bernanke said to reporters. Despite fears that increasing the Fed's media presence would create additional levels of volatility in the market, the Fed eventually concluded additional transparency "outweighs some of these risks," Bernanke said. -- Maxwell Strachan

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There's little the Fed can do to target long-term unemployment in particular, Bernanke said.

Part of the Fed's mandate is to promote maximum employment. But two months from the end of the second asset-purchase program, the unemployment rate is high, at 8.8 percent. The number of long-term unemployed, people who have been out of work for at least six months, is now higher than it's ever been since World War Two, Bernanke said.

But there's only so much the Fed can do, the chairman said.

"We dont have any tools for targeting long-term unemployment specifically. We can just try to make the labor market work better broadly speaking," he said.

"It becomes really out of the scope of monetary policy. At that point, job training, education and other types of interventions would probably be more effective." —William Alden

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Discussing whether to focus on the jobs crisis or inflationary concerns, Bernanke says the "tradeoffs are getting less attractive."

Additionally, Bernanke indicates that any significant wage increases would come at the cost of less manageable inflation. Over time, he says, monetary policy will be less fit to fight unemployment crisis than other government tools like education. —Maxwell Strachan

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The central bank can't do anything about gas prices, Bernanke said: "The Fed can't create more oil."

Asked why oil prices are rising, he blamed supply and demand, saying conflict in the Middle East and North Africa has constrained supply, driving prices upward.

"This is a very adverse development," Bernanke said. "It accounts for pretty much almost all of the increase in our inflation forecast in the near term."

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Bernanke gave his projection for the unemployment rate:

8.4-8.7 percent by the fourth quarter of this year.

6.8-7.2 percent by the fourth quarter of 2013.

Also: Bernanke said he hasn't yet seen the first quarter GDP number. But he expects it to be less than 2 percent.

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There may be more to the Fed statement than meets the eye. Bernard Baumohl, chief global economist of the Economic Outlook Group, suggests Fed insiders might have seen a key datapoint that hasn't yet been made public. He writes in a note to clients:

Did Bernanke get a sneak preview of tomorrow's GDP report for the first quarter?

We ask this question because a careful read of the FOMC statement suggests there is growing concern the US economy will next struggle through a period of stagflation.

In the very first sentence, the FOMC downgraded its March description of the recovery from one that is on a "firmer footing" to a more flaccid "proceeding at a moderate pace." The change in wording likely indicates first quarter growth was less than the fourth quarter's 3.1%, perhaps slipping closer to 2.5%. Our own forecast calls for a deceleration to 2.1%

-- William Alden

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The Federal Reserve announced today that it will keep interest rates low and that it had no immediate plans to change its massive economic support programs.

In the release, the Fed says the economic recovery is continuing at a "moderate pace" and dismisses inflationary fears as "transitory."

Since the announcement of the Fed's controversial 0 billion asset-purchasing program -- dubbed "quantitative easing" the economy has remained weak, the housing market has sagged and food and energy prices have soared. The Fed's asset-purchasing program is scheduled to end June.

Since then, both S&P and Dow Jones made immediate, albeit small gains.

From the release:

Information received since the Federal Open Market Committee met in March indicates that the economic recovery is proceeding at a moderate pace and overall conditions in the labor market are improving gradually. Household spending and business investment in equipment and software continue to expand. However, investment in nonresidential structures is still weak, and the housing sector continues to be depressed. Commodity prices have risen significantly since last summer, and concerns about global supplies of crude oil have contributed to a further increase in oil prices since the Committee met in March. Inflation has picked up in recent months, but longer-term inflation expectations have remained stable and measures of underlying inflation are still subdued.

...

To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to continue expanding its holdings of securities as announced in November. In particular, the Committee is maintaining its existing policy of reinvesting principal payments from its securities holdings and will complete purchases of 0 billion of longer-term Treasury securities by the end of the current quarter. The Committee will regularly review the size and composition of its securities holdings in light of incoming information and is prepared to adjust those holdings as needed to best foster maximum employment and price stability.

Read the entire release here. -- Maxwell Strachan

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As Federal Reserve Chairman Ben Bernanke prepares for the media storm surrounding Wednesday's press conference, the first in history by the Fed, it's safe to assume he's aware that a single slip could move financial markets around the world.

After all, that's long been the case with all announcements by the Fed.

"In DC we're used to politicians saying whatever they want," Robert Volmer, president of the PR firm Crosby-Volmer, which has clients in government and finance, told the HuffPost's William Alden. "But if Bernanke says the wrong thing, it could affect global markets."

Whether he's aware, though, that his image could also make a difference remains unknown. It's certainly important, according to the HuffPost's William Alden:

"It's unfortunate that you'd be judged on posture, or looks, or tone," said Gerard Carney, head of U.S. financial communications for the PR firm Fleishman-Hillard, who formerly was the spokesman for the Financial Accounting Standards Board. "But that goes with the job."

...

"There's two schools of thought on what he should wear," said Marva Goldsmith, chief image officer of Marva Goldsmith and Associates. "If he wears something very corporate, then the mood that he sets is all business. I'm sure it would appeal to bankers and the like."

"If he lightens it up and becomes a little more approachable -- a light blue shirt and a dark suit -- then he has more of an appeal to the common person looking at the press conference," she added.

Read the entire story here

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Stocks are mixed ahead of Bernanke's press conference. The S&P 500 is down about 0.1 percent, and the Dow Jones Industrial Average is up about 0.1 percent.

The dollar is slightly weaker, as investors expect the Fed to continue its policy of monetary easing. That expectation drove Brent crude oil, a European benchmark, above 4 a barrel on Wednesday, Reuters reports.

In New York, benchmark crude fell nearly a dollar, AP reports.

The Fed is expected to keep interest rates near zero for the next several months. This policy of accommodation could spark inflation once the recovery takes hold and the system remains awash in liquidity, investors fear. Oil, like other commodities and precious metals, is used as a hedge against inflation.

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When Bernanke speaks, journalists and investors will pick apart his language for subtle clues into the Fed's plans for monetary policy. Even as reporters bombard him with questions, his every word will matter.

"One of the great challenges he's going to have is being very, very careful to use the right adjective or right adverb," said John Silvia, chief economist at Wells Fargo. "What is 'sustainable growth'? I'm not sure what that means. What is 'accelerating inflation' as opposed to 'modest inflation'?"

The Wall Street Journal has put together a handy guide to Fed Speak. Here's a sample:

"Inflation expectations." If Mr. Bernanke frets about longer-run inflation expectations rising in the face of surging commodity prices, it could signal a hawkish turn for monetary policy and increase the odds that the Fed will boost interest rates earlier than is now expected.

A tip about TIPS. Watch for any comments about inflation-indexed Treasurys (known as TIPS). Any mention of these bonds in conjunction with a reference to consumer-sentiment surveys may offer significant clues to Mr. Bernanke's thinking about inflation expectations. He could refer to them in a reassuring manner—as in, demand for TIPS means that inflation expectations are staying low. It's old news if he says something about short-term expectations having risen. He recently has acknowledged and dismissed this, saying it reflects the clear-cut rise in food and energy prices he believes won't endure.

Read the whole guide here.

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Leading up to Federal Reserve's first-ever press conference, prominent economists, journalists and bloggers have been throwing out questions they would like to see the media ask chairman Ben Bernanke. The primary theme, if the web is any indication, could be the tense relationship between unemployment and inflation. What questions would you ask? Here's a sampling from notable voices on the Web:

-- Pulitzer-prize winning New York Times columnist David Leonhardt: "Why has Mr. Bernanke decided to accept widespread unemployment for years on end, even though he believes he has the power to reduce it?"

-- Berkeley professor and former Treasury official Brad DeLong in the Wall Street Journal: "What is your current estimate of the natural rate of unemployment in the United States today?”

-- Peter Coy at Bloomberg Businessweek: "Since the housing downturn is the core of the problem, when will housing recover?"

-- The Big Picture: "How much of the current oil price do you think is real and how much is speculation? And do you think the Fed’s zero interest rate policy (ZIRP) is having any impact on the price of commodities, especially food and oil?"

-- Former Labor Secretary Robert Reich: "Will the Fed signal it’s now more worried about inflation than recession?"

-- The Center For Economic And Policy Research: "In your opinion, how would the recently-passed House 2012 budget, which cuts trillions in spending, affect the economy and unemployment rate?"

-- Yves Smith of Naked Capitalism pitches the same question she recently asked Larry Summers: "Given the extraordinary level of support extended to major banks during the crisis and now, via measures like super low interest rates and continued regulatory forbearance, why does the Fed continue to maintain the fiction that they are private companies?"

-- Tyler Durden at Zero Hedge: "The rescue packages in 2008-2009 were all aimed at restoring CONFIDENCE to the financial system. Yet from 2001 to 2011... gold is up 473%. Does this not equate to a loss of confidence in the US monetary system?"

-- Andy Kroll and Nick Baumann at Mother Jones: "The Fed is supposed to be independent, yet banks appoint many of its directors. Is the Fed too close to Wall Street?" -- Maxwell Strachan

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