could this move bring another round of risk with it? fed chairman ben bernanke about to get in the hot seat, we'll take you there live. but first we have breaking news from the fed. steve leisman is over there. what are we hearing? >> thanks very much, mandy. we have the quarterly economic projections up. members of the federal open market committee. 13 members now received the first rate hike. they did one of those cha cha slides, slide to the right in terms of when they think the first rate hike is going to come. what happened? six members -- the average rate hike -- average interest rate level in 2015 -- 1.55%. for 2014, 0.8%. that's down 30 base points. now let's look at the economic projections which i thought were kind of interesting. they downgraded 2012.

you would expect that but they upgraded 2013 and '14 by 25 basis points for '13 and i think the fed showing those numbers are pretty strong. unchanged in the employment rate from the june forecast for unemployment in 2012 and for '13. actually brought it down for 2015. then of course -- '14. then we get the first look at the forecast for 2015 at 6.4% is the average unemployment projection of the 19 members of the federal open market committee. you would think that's a long way off. it shows that the fed still thinks that even after a considerable time of strong growth that the unemployment rate will remain relatively

high. just minutes away from a press conference. >> i have a question for you, steve. if these current projections are not that much more bearish than they used to be, why do we need qe3? do we need this? >> so mandy, as usual, you nailed the right question there. and i think the answer is the one that says -- those projections incorporate this policy and the idea would be in the absence of this policy, those projections would be somewhat lower. i think that's the answer that a member of of the federal market committee would give you, that we're going to get better numbers because of this policy. in the absence of these policies, that's why i'm surprised, i thought those numbers would have come down. >> in your professional opinion, with a do you think will really be accomplished by there latest round of easing? >> it's hard to say. i think this is an interesting change in how the fed does people here. they're telling the markets that they're going to remain easy even when the economy is in the midst of a pretty strong

recovery of 3.4%. it was suggested that is the most effective tool of the federal reserve. i think the calculus is changing a little bit. at least a little more open ended from the known quantifiable effects of just qe to this kind of guidance that says, hit me in the face, douse me with water, i ain't changing my policy. that's what the fed is doing right now and i think it may change the calculus a little bit. >> steve, stick around. let's bring in barbara reinhart, chief investment strategist at credit suisse. jim bianco, president of bianco research. bob pisani, rick santelli. i'm going to start off with you, barbara. i'm a little confused. looking down, the fed is upgrading its growth outlook but now fewer members are seeing rate hikes. can we square that? i can't. >> i think you can because the

fed's action today was very effective at diminishing some of the risks that have been in the markets. unemployment has been stubbornly high in the u.s. concerns out of europe and the fiscal cliff have been somewhat of a drag to economic growth. the statement today he truly tries to diminish some those tail risks. >> from the stock perspective, has this actually changed the outlook in the next 6 to 12 months for the stock market? does it make it any better? >> it hasn't changed our view. we put a tactical overweight on to equities in early june of this year because we felt as though some of the tail risks were indeed starting to diminish. i think that the fed's action today is telling you that they're very aware that the economic recovery is -- has been slow and has slowed down this year and that they're willing to duck a lot of resources against it to ensure a better recovery. >> to that point, bob pisani, you've been banging the soap box for many, many years now about

what is it going to take to basically get investors out of bonds and into stocks. is this going to be it? >> we are heading in that direction but not quite. i would note today that bonds dropped -- particularly treasury bonds dropped rather notably. some people were not happy that the treasuries were not included as purchases. but so far the damage is fairly limited. for example, treasury bond fund are only at four-month lows. i think you have to get a lot more damage to really get people out of bounds and into stocks. there is a lot of debate about whether quantitative easing works. the fed thinks up. upping their forecast for 2013 and 2014 is a little bit of a surprise. agree with steve, it is because they think things are going to be better because of what they're doing. >> steve's got to run into the meeting. steve, we'll see you in just a bit. that's the big deal here so we'll let you go. thank you very much. rick santelli, can you square the question? again, i'm not trying to belabor it, but unless the fed is saying we're the reason things are going to be better, i'm trying

to square this idea that fewer of them see a rate hike next year but they're upping their growth outlook or am i completely off base? >> no. matter of fact, compared to where i am, you're right on base. i don't think even in a good normal year the fed could be accurate in a prediction two or three years out, much less in the times we live in. i still don't understand why the stock market being up 172 is going to make anybody who doesn't pay taxed which we need to lower the deficit because they don't have a job. i don't know how that situation is going to change. take it a step farther. i see the option adjustment spread, the bond rate is probably going to be lower but there aren't enough people able to re-fi. we'll go through this again. if low rates was going to cure the ales of housing, it would have been on the mend much faster. people that are going to re-fi at a lower rate because of this probably would have been able to re-fi and people that can't

aren't going to be able to even if the rate's lower. i can't square this, absolutely not. >> it is not going to make it any easier for people to be able to get a mortgage. right? jim bianco, does it change your forecast for the economy, for the stock market, for the bonds? what does it do? >> no. this is more of what we've seen from the fed for the last couple of years. they specifically say that the purpose of quantityive easing is to push up risk asse make the stock market go up higher. that's what the stock market is responding to. their hope has always been higher stock prices would lead to increased confidence, more hiring, higher economic growth. i think evidence shows none of that's happened over qe1 or qe2 and it won't happen over qe3. i agree it removes the risk that the market is going to go down but in the end because this is an open-ended program, it increases it a lot. we'll have a big problem with

2013. but for 2012 and into early 2013, it is probably going to be a positive. >> didn't they say something along the lines of when the job market improves? >> significantly. >> i don't see how that's going to create more jobs, right, jim? >> right. and i hope that steve asks the question or somebody asks the question like that, please explain what the definition of significantly improved means because that's going to be probably the most important question for fed policy as we move forward into 2013, when is it significantly improved and when are you going to stop. >> i think, barbara, it is "improves for who?" because as i tweeted out earlier, yeah, mortgage rates are down, which is great if you can buy or re-fi. borrowing rates are down if you can get credit. but oil prices are higher. that is regressive. the fed moves really depend on who benefits based on income in a lot of ways. >> i think the discussion also needs to focus on one other point. that the ecb and the federal reserve are also telling you

that they are willing to put open-undered unlimited resources against this economic weakness that we had earlier this year. think of it this way -- the ecb's move from just a few days ago actually had the effect of dropping two-year spanish bond yields by 120 basis points without spending one euro. sometimes just knowing that the central bank is going to take bold enough and big enough action means that the actual open-endedness of it ends up being more limbed than probably what most investors expect. so it is about bringing a big enough tool kit to the problem. >> jim, don't you think that the federal reserve is eventually will enupsate very specific targets on employment? they'll come out an specifically say 7%. don't you think within the next year? they're not going to just let this float around like that. it would be logical and evolutionary for the fed to do that. >> i really hope they do because you're right, if they don't enunciate at some point -- they

don't have to do it at this press conference today. but if they don't tell us what the number is or where the exit strategy is, then we'll leave it to wall street to speculate. then we'll just have hurky jerky markets. at some point they have to give us some definitions as to what all of this means and where we can expect it to stop. >> we got to go, but maybe also how they'll retrain the manufacturing worker to program smartphone apps. don't go anywhere. we will take a quick break. on the other side, we'll hear from ben bernanke. there you see on the right of the clock, folks. that is what we're call the epi, the empty podium indicator. >> the so called empty chair. >> exactly. it is not being interviewed. but we're back with the man in it coming up soon. stick around. i don't spend money on gasoline. i don't have to use gas. i am probably going to the gas station about once a month. drive around town all the time doing errands

and never ever have to fill up gas in the city. i very rarely put gas in my chevy volt. last time i was at a gas station was about...i would say... two months ago. the last time i went to the gas station must have been about three months ago. i go to the gas station such a small amount that i forget how to put gas in my car. ♪ that i forget how to put gas in my car. when we got married. i had three kids. and she became the full time mother of three. it was soccer, and ballet, and cheerleading, and baseball. those years were crazy. so, as we go into this next phase, you know, a big part of it for us is that there isn't anything on the schedule.

we are just moments away from the start of ben bernanke's news conference. with us still here on the show, barbara reinhart, chief investment strategist at credit suisse, and jim biancbianco, president of bianco research. barbara, how much now with qe3 being unleashed is inflation a concern? are we going to be hit with a wall of inflation? already food and energy costs are on the rise as we saw in the ppi today. do we need to start thinking in terms of inflation protected investing? >> not necessarily just yet. the way that we're thinking

about inflation is a little bit of inflation for this market wouldn't be a bad thing because the fed's concerned about deflation at this point. we think one of the big hejs against inflation are u.s. equities that are paying dividends. we note that u.s. equities especially the s&p 100, has been growing their dividends quite handsomely even over the past five years. they've grown by 11% on average over the last five years. that's a very good hedge dpens inflation. >> jim, in your professional opinion are we more likely to have 2% yields on the 10-year or 1% yields on the 10-year? >> since we're closer to 2% right now, i'd probably have to say 2% but not much higher than that. one of the stories of the bond market over the last couple of years is how well it's treated investors. if you own bond on a total return basis, you had a spectacular 2011, you're having an okay 2012. over the last several years

you've yut performoutperformed market under almost any measure. i understand with this round of quantitative easing you won't see the yields as long as the fed's in there purchasing them -- >> okay, thank you very much. let's go now to the man of the hour, fed chairman ben bernanke and his post-move press conference. here we go. >> good afternoon. earlier today the federal open market committee approved some new measures to support the recovery and employment growth. i'll get to the specifics of our actions in a few moments but you i'd first describe the economic conditions that motivated the committee's decision to take additional actions. as you know, the federal reserve conducts monetary policy under a dual mandate from congress to promote maximum employment and price stability. the united states has enjoyed broad price stability since the mid 1990s and continues to do so today. the employment situation,

however, remains a grave concern. while the economy appears to be at a path of moderate recovery, it isn't growing fast enough to make significant progress reducing the unemployment rate. fewer than half of the 8 million jobs lost in the recession have been restored and at 8.1%, the unemployment rate is nearly unchanged since the beginning of the year and is well above normal levels. the weak job market should concern every american. high unemployment imposes hardship on millions of people and it entails a tremendous waste of human skills and talents. 5 million americans have been unemployed for more than six months and millions more have left the labor force. many of them doubtless because they've given up on finding suitable work. as the skills of the long term unemployed at atrophy, they may find it increasing by difficult to get good jobs, also to the detriment of our nation's

production pro tensiotential. the fomc has provided unprecedented levels of policy accommodation in recent years. with our main policy interest rate near its effective lower bound, we've been using two complimentary tools to carry out monetary policy -- balance sheet actions and forward guidance regarding how long we anticipate maintaining exceptional levels of policy accommodation. while providing the support we've been prudent, carefully weighing potential benefits and costs of each new policy action and recognizing that monetary policy particularly in the current circumstances cannot cure all economic ills. the fomc has taken several actions this year. in january it extended its forward guidance, stating that it anticipated the federal funds rate will remain near current levels until late 2014. in june the committee decided to continue through the end of the year the previously established program to extend the average

maturity of the securities it holds by buying longer term securities and selling an equivalent amount of shorter term securities. however, incoming data confirmed that the modest pace of growth continues to be inadequate to generate much progress in unemployment. with an inflation anticipated to run at or below our 2% objective, the committee has become convinced that further policy accommodation is warranted to strengthen the recovery and support the gains we have begun to see in housing and other sectors. accordingly, the ffomc elected o expand its prchls of securities and extend its forward guidance regarding the federal funds rate. specifically the committee decided to purchase additional agency mortgage-back securities or mbs. that combined with the existing maturity extension program and the continued re-investment of

principle payments already on our balance sheet will result in an increase in our holdings of longer term securities of about $85 billion each month for the remainder of the year. the program of mbs purchases should increase the downward pressure on long term interest rates more generally but also on mortgage rates specifically which should provide further support for the housing sector by encouraging home purchases and refinancing. the committee also took two steps to underscore its commitment to ongoing support for the recovery. first, the committee will closely monitor incoming information on economic and financial developments in coming months. and if we do not see substantial improvement in the outlook for the labor market, we will continue the mbs purchase program, undertake additional asset purchase and employ our policy tools as appropriate until we do. we will be looking for the sort of broad based growth in jobs and economic activity that generally signal sustained improvement in labor market conditions and declining

unemployment. of course, in determining the size, pace and composition of any additional asset purchases we will, as always, take appropriate account of the inflation outlook and of their efficacy and costs. additionally the committee ecfa sized that it expects a highly accommodative stance on monetary policy to remain appropriate for a considerable time after the economic recovery strengthens. this should provide greater assurance to households and businesses that policy accommodation will remain even as the economy picks up. in particular, the committee today kept the target range for the federal funds rate at 0% to .25% and indicates exceptional low level for the federal funds rate will are likely to be warranted at least through 2015. in conjunction with today's meetings, fomc participants, 12 board members, committed their economic projections and policy assessments for 2012 through

2015 and over the longer run. committee participants projections for the unemployment rate in the fourth quarter of this year have a central sendty of 8.0% to 8.2% declining to 6.0% to 6.8% in the fourth quarter of 2015. levels that remain somewhat above participants' estimates of the longer run normal rate of unemployment. participants projections of inflation have a central sendty of 1.7% to 1.8% for this year, and 1.8% to 2.0% for 2015. while the economy appears to be advancing at a moderate pace with some improvements appearing in housing and elsewhere, fomc participants see an economic outlook that remains uncertain. the economy continues to face economic headwinds, including the situation in europe, tight credit for some borrowers, and fiscal contraction at the federal, state and local levels. in addition, strains in global financial markets continue to pose significant downside risks.

before i take your questions i'd like to briefly address three concerns that have been raised by federal reserve's accommodatiaccommodate ive monetary policy. a policy at very low rates hurts savers, that the federal reserve's policies risk inflation down the road. the fed's purchases of longer term securities are not comparable to government spending. the federal reserve buys financial assets, not good and services. ultimately the federal reserve will normalize its balance sheet by selling these financial assets back into the market or by allowing them to mature. in the interim, the federal reserve's earnings from its holdings of securities are remitted to the treasury. in fact, the odds are strong that the fed's asset purchase programs both through their net interest earnings and by strengthening the overall economy, will help reduce rather than increase the federal deficit and debt.

on the second concern, my colleagues and i are very much aware that holders of interest bearing assets such as certificates of deposit are receiving very low returns. but low interest rates also support the value of many other assets that americans own such as homes and businesses, large and small. indeed, in general, healthy investment returns could not be sustained in a weak economy. of course, it is difficult to save for retirement or other goals without the income from a job. thus, while low interest rates do impose some costs, americans will ultimately benefit most from the healthy and growing economy that low interest rates help promote. finally on inflation, inflation has varied in recent years with swings in global food and fuel prices caused by a range of factors such as drought and geopolitical tensions. however, overall inflation is averaged very close to the committee's goal of 2% per year for quite a few years now and a variety of measures show longer term inflation expectations are

quite stable. the federal reserve is fully committed to both sides of its mandate to price stability as well as maximum employment. it is both the tools and the will to act at the appropriate time to avoid any emerging threat to price stability. thank you, i'd be happy to respond to your questions. >> hi, mr. chairman. your forecast doesn't get back to full employment for nour years. could these new bond purchases go on for years? and can you give us a better idea if you have specifics in mind on when you'll know it's time to stop. >> yes. we'll be looking for signs that the economy is strong enough to promote improvement and sustained improvement in labor market conditions and declines in unemployment. i mean that's -- we're not going to be able to sustain purchases until we're all the way back to full employment. that's not the objective. idea is to quicken the recovery to help the economy begin to grow quickly enough to generate

new jobs and reduce the unemployment rate. so that's the criterion we are looking at. >> christina peterson with dow jones. statement indicated that the highly accommodative stance would be maintained until after the recovery starts to strengthen. but there aren't any specific economic conditions that are described. could you describe what those would be or is the fed -- fed seems reluctant to have done that so far. >> well, we've been talking about our communications at the fomc and trying to think about how best to communicate to the public what our policy reaction function, so to speak, is. we haven't to this point come to a set of numbers, set of data that we can put out. but what we try to convey here is that we're not going to be premature in removing policy accommodation. even after the economy starts to recover more quickly, even after the unemployment rate begins to move down more decisively, we're

not going to rush to begin to tighten policy. we're going to give it some time to make sure the recovery is well established. >> i want to talk about that same line in the statement. does that mean that your tolerance for inflation will be higher in coming years, in the middle of the recovery? and if not, what good is that language there if it doesn't tell people that the reaction function holds true if inflation remains unchanged. prices in gold are up. why isn't that part of the same reaction to the fed's acts today? >> well, our policy approach doesn't involve intentionally trying to raise inflation. that's not the objective. idea is to make sure we provide enough support to the economy will grow fast enough to bring unemployment down over time. as we look at the last six months, we've seen unemployment basically the same place it was in january. we've seen not enough jobs

growth to bring down the unemployment rate and what we need to see is more progress. that's what we'll be looking at. in terms of the mid 2015 date, we think by that point that the economy will be recovering, we'll be providing the support it needs. but if you look at our projections you'll see it doesn't involve any inflation. we still believe that inflation is going to be close to our 2% target. >> i need just to follow up. does this -- so you're saying it does not include greater tolerance for inflation that you would reverse course if inflation were to be above your target level even given that statement? >> well, if inflation goes above the target level, as we talked about in our statement in january, we take a balanced approach. we bring inflation back to the target over time, but we do it in a way that takes into account the deviations of both of our objectives from their targets. >> thank you, mr. chairman. earlier this year on two

occasions the fed took policy action which you defended saying it was extremely important for the xhi. but as you mention, there hasn't been any improvement in the labor market since the beginning of the year. why should people believe this will make a difference and the projection seems to suggest it is approximately a .4 reduction on unemployment. is that the limit of what the fed policy is going to do going forward? >> our assessment -- and that is the research literatures that the policies that we've undertaken have had real benefits for the economy, that they have provided some support, that they have eased financial conditions and helped reduce unploim. all that being said, monetary policy as i've said many times is not a panacea. it is not by itself able to solve these problems. we are looking for policymakers in other areas to do their part. we'll do our part and try to make sure that unemployment moves in the right direction but we can't solve this problem by ourselves. >> do you think the .4% difference in reduction is about

what's possible? >> well, what happens is going to depend on where the economy goes, how much ultimate accommodation we give the economy. the .4% you were referring to is the change in the forecast between the last projection and this one. but remember, people make projections assuming that policy is appropriate. so some of them may have assumed these policies in their last projections and not all are assuming these policies in this projection. it probably a little bit of an understam of what we think we can get. but in any case, again i want to be clear, that while i think we can make a meaningful and significant contribution to reducing this problem, we didn't solve it. we don't have tools that are strong enough to solve the unemployment problem. >> you've made an eloquent explanation over the past couple of weeks of the fed's ability to lower interest rates. but what's missing for many economists is how the transmission mechanism is going

to work. most people think this will have a minimal effect on rates. can you give us an idea of how much you think it might push rates down and why moving rates down a few basis points might change demand which seems to be the problem in the economy. >> well, the ultimate effect is going to depend on how much we end up doing. that in turn is going to depend on what the economy does. if this is a conditional program we are going to be providing accommodation according to how the economy evolves. i think that's the virtue of putting it this way, that if the economy is weaker we'll provide more support. if the economy strengthens on its own or other headwinds die down it will require less support. amount of support we provide is going to depend on how the economy evolves. we do think that these policies can bring interest rates down. not just treasury rates but a whole range of rates including mortgage rates and rates for corporate bonds and other types of important interest rates. it all affects stock prices.

it affects other asset prices. home prices, for example. so looking at all the different channels of effect, we think it does have impact on the economy, it will have impact on the labor market. but as again, the way i would describe it is a meaningful effect, a significant effect, but not a panacea, not a solution for the whole issue. we're just trying to get the economy moving in the right direction to make sure that we don't stagnate at high levels of unemployment that we're making progress towards more acceptable levels of unemployment. >> robin harting from the financial times. is this the limit of what the fed could do? you refer in your statement to the policy tools. if the unemployment situation doesn't improve, they be what other measures do you have available? thank you. >> well, there's a variety of possibilities and we continue to look at all different options but the two primary types of

tools as i've discussed are balance sheet actions. of course we can restructure those, change those in various ways. the other type of tool is communication tools. we continue to work on how best to communicate with the public and how best to assure the public that the fed will remain accommodative long enough to ensure recovery. so working with our communications tools, clarifying our response to economic conditions might be one way in which we could further provide accommodation. >> my question is i want to go back to the transmission mechanism. speaking to speak on the sidelines of jackson hole conference, that seemed the concern about the remarks that you made, is that they could clearly see the effect on rates an they could see the effect on the stock market, but they couldn't see how that had helped the economy. so i think there is a fear that over time this has been a policy that's helping wall street but not doing that much for main street. so could you describe in some

detail how does it really differ from trickle-down economics where you just pump money into the banks and hope that they lend? >> well, we are -- this is a mainstreet policy because what we are about here is trying to get jobs going. we're trying to create more employment. we're trying to meet our maximum employment mandate so that's the objective. our tuls -- tools we have invol affecting financial asset crisis. those are the tools of monetary policy. tlp are a number of different channels. mortgage rates. i mentioned other interest rates. corporate bond rates. but also the prices of various assets. for example, the prices of homes. to the extent home prices begin to rise, consumers will feel wealthi wealthier, they'll feel more disposed to spend. if house prices are rising, people may be more willing to buy homes because they think that they'll make a better return on that purchase.

so house prices is one vehicle. stock prices, many people own stocks directly or indirectly. the issue here is whether or not improving asset prices generally will make people more willing to spend. one of the main concerns that firms have is there's not enough demand. there's not enough people coming and demanding their products. if people feel that their financial situation is better because their 401(k) looks better, for whatever reason their house is worth more, they're more willing to spend. that creates the demand most firms need to be able to hire or invest. >> john hillsenwrath from the "wall street journal." if the outlook for the labor market does not improve substantially, the committee will continue its purchases of agency mortgage backed securities, additional asset purchased and employ other policies. can you define and describe more specifically what improved

substantially means and what is the committee referring to when it says additional asset purchases and other tools? >> well, again, we're looking for ongoing sustained improvement in the labor market. there's not a specific number we have in mind. but what we've seen the last six months isn't it. we're looking for something that involves unemployment coming down in a sustained way, not necessarily a rapid way because i don't know if our tools are that strong. but we'd like to see an economy which is strong enough that it will support improving labor market conditions and unemployment that's declining gradually over time. that's essentially what we're looking for. in terms of the tools that we have, we have the mortgage backed security purchases which we can continue or expand or change in various ways. we could also purchase of course treasuries. we retained that capacity. in terms of other policies, again there are a number of

possibilities but the one i mentioned to zach in particular is our communication policies, finding ways to better explain our rate policies that will engender more accommodative financial conditions. >> mr. chairman, it seems pretty clear the fed's announcement today has created a good deal of confusion how long you'll keep buying assets judging from the questions in this room and outside of it. why did you choose not to adopt a specific target? did the committee consider specific targets? there have been a number of proposals and why did you choose not to do that? >> well, the problem is that for this purpose, that what we are looking for is a general improvement in labor market conditions. we want to see the unemployment rate come down but that's not the only indicator of labor market conditions. unemployment rate came down last

month because participation fell. that's not necessarily a sign of improvement. so we want to see more jobs, lower unemployment, we want to see a stronger economy that can cause the improvement to be sustained. it's not just a one-month or two-month phenomenon. we're not going to be looking for little wiggles in the numbers that will cause us to radically shift our policy. we at least at this point have decided to define it qualitatively. i hope i am giving you at least a little color in terms what have we'll be looking for. again, looking for an economy that's quickening, that gives signs of continued improvement, that allows labor markets to be stronger. and that will be the type of qualitative criteria that we look at. we don't -- again, we don't have a single number that captures that but we anticipate we'll have to do more and we'll do enough to make sure that the economy gets on the right track.

>> hi, mr. chairman. someone told me that less than 1% of all mortgages originated in the past 18 months went to borrowers with impaired credit history. so when we talk about people in a main street policy, seems like you're struggling, like many other central banks, and that's to get the low rates down to the -- the challenge is to get them to people who really need them, people who are paying high rates are companies with somewhat fragile balance sheets. so given that's the case, i mean you guys got involved in markets when they were dysfunctional in the crisis. what's your appetite for doing more targeted credit programs if post-leak you add a treasury secretary and a congress that was willing to underwrite some of the credit risk? >> well now you are talking about congressional programs that i don't -- i don't advocate specific programs. it is up to them to make those

decisions. i think we're seeing modest improvement in mortgage markets. one thing that's helping is stronger housing market. one reason that lenders have been very constraining is they're worried about further house price declines that will make the collateral worth less than the loan. as house prices have begun to rise, as the economy's gotten a little stronger, lending standards have eased just a bit. there's also been other changes which are useful. i note for example that the fhfa and the gses have recently changed their policy on put-backs so that banks will have more certainty about under what conditions a mortgage would be put back to them if it defaults. so i think there is a number of things in training that will make the mortgage markets a little bit more open. and that is one factor actually that could make our policy more effective rather than less effective over time, if more people have access to mortgage credit, more people can take advantage of the low rates that

we are providing. >> mr. chairman, one of the innovations of your statement today that you have for the first time predicated your monetary policy action on the achievement of explicit improvement in the labor market. give us an example of how that conditioning will make your policy more effective than if you had simply done as you previously have, announced a policy, then conducted it. and a technical question. when operation twist ends, do you anticipate adjusting the size of your asset purchases in order to maintain the $85 billion monthly flow of long-term asset purchases? >> on the latter, when operation twist ends we will be looking at the whole set of asset purchases in order to make decisions. we'll be looking at the state of the economy as we described in the statement. in particular, what's the state of the labor market, what's the

state of the outlook for economic growth. i'm conditioning -- our policy's always been conditional in that we've always been clear that our asset purchase, for example, were reviewed periodically to see if they were still necessary gb they needed to be expanded. we did extend the maturity extension program for example when we thought that more support was needed for the economy. our policies have always had a significant element of conditionality. but the idea here is to make that more explicit, more transparent to the public, make it more obvious that the fed will do what's needed to provide the support for the economy. we hope that what that will do is provide a bit more assurance, maybe a bit more confidence that the fed will be there to do what it can. again, we're not promising a cure to all these ills, but what we can do is provide some support, and by assuring the public that we will be prepared to take action if the economy

falters, we're hopeful that will make people more willing to invest higher and spend. >> sir, just to follow up on darren's questions -- question about getting back to full employment. it looks like there is a lot more work to do here and so i wanted to ask you about your plans as fed chairman. your term expires in january of 2014. governor romney's comments notwithstanding, what are your plans? do you plan to leave at that time? would you consider an appointment to a third term at the fed at all? and then if i may, on election year politics, is there any -- do you have any concern and was there any discussion within the committee about whether or not your actions today might be perceived as helping president obama -- helping the economy and thus helping president obama get

re-elected and hurting gopher romney's chances in the presidential contest? thank you. >> well, on the former, i have a lot to do. i'm very focused on my work and i don't have any decision or any information to give you on my personal plans. on the politics, we have tried very, very hard, and i think we've been successful at the federal reserve, to be nonpartisan and apolitical. we make our decisions based entirely on state of the economy and needs of the economy for our policy accommodation. so we just don't take those factors into account. we think that's the best way to maintain our independence and maintain the trust of the public. >> chairman, donna borac with "american banker." community bankers have been very

worried about the impact that these rules will have on their banks, especially given the fact that there's been some industry consolidation. and some have even questioned whether or not the fed has actually looked at the impact that the rules would have on smaller sized institutions. so my question for you is, will there be relief for the smaller institutions, and can you provide any assurance that this will not be a one-size-fits-all regulation? >> certainly. we are very interested and very focused on community banks at the fed. we believe they play a very important role in our economy, in our communities. we have a number of ways of communicating with community banks. it includes our advisory council made up of community bankers. it includes a special set of programs we have to reach out, talk to community bankers. so we are very interested in their views. i speak regularly to conventions and the like and talk to various groups. in terms of basel 3, of course

it is not one size fits all. many of the most difficult complex regulations apply only to the largest and most complex institutions. for example, the capital surcharge that the largest banks have to hold, the complex reels applying to trading books and derivatives, the extra supervision under section 165, the orderly liquidation authority, the liquidity rules, the whole range of things that apply only to the largest most complex and internationally active banks. for the smaller banks, what our proposed rule does is try to strengthen their capital, and many small banks will already meet those capital requirements. small banks tend to be very well capitalized but of course it is important for small banks to be well capitalized as well as large banks and there is a leverage requirement. but again, most of the rules, most of the -- particularly the

most complex rules will not apply to the smaller banks. indeed, banks under $500 million have special exemptions from these rules. having said all of that, i remind you that what we have now is a proposed rule and we're receiving comment on that. we have a subcommittee of our supervision committee with two experienced -- one community banker, one community bank supervisor on it from our board, who are particularly interested in making sure that the rules are not excessively onerous. we will be looking at the comments and trying to make sure that we take into account the needs of community banks when we put out the final rule. >> thank you, mr. chairman. yesterday former fed governor larry meyers at a conference in washington said he'd never seen such a divided fed. and we see it, we who cover the

fed see it in the speeches in the run-up to today's decision. some people said that it was dubious whether qe3 would work. could you comment on former governor mie meyers' suggestion sometimes don't you wish some of the officials who don't support qe3 would keep their fears to themselves? thank you. >> as you know, we are living in a very plex time and dealing with a complex economic situation and a variety of novel and different issues, including new policies that haven't been used in the same way in the past. and so naturally we have a range of views, a range of opinions. i think on the whole that's probably a good thing. it's good to hear different points of view. it is good to make sure that the points of view that are outside the fed are reflected in the discussion around the table, inside the fed. so we have a very collaborative

and collegial discussion process that spans a range of views. we were, however, able to come to a pretty good consensus. as you know, the vote on this was 11-1. that's a sign that the broad center of the committee does support these actions and will continue to support them going forward. >> but does the negative commentary hurt qe? if people in the market don't think it will work? >> there's going to be negative commentary whether it comes from fed officials or not. again, because there is a range of views. some people think it is more effective than others, i discussed some of the evidence in my speech in jackson hole and i talked about the fact that different researchers have don't different estimates of the impact. virtually all of them find that

there is some beneficial impact but they disagree on how much. so there's going to be disagreement. and again, i personally don't think that it is a panacea. i personally don't think that it is going to solve the problem. but i do think it has enough force to help nudge the economy in the right direction. >> you said that you can't cure all ills, that you have not strong enough tools to deal with the unemployment problem. i was curious to know what policy actions you'd like to see outside the fed to try and address this? second or so, on the fiscal cliff, the expected spending cuts an tax increases. how concerned are you about that and what ammunition do you have to deal with that if that becomes a problem? >> well, again, there is a range of areas where actions could be taken and i can't really prescribe all those possible responses. i think i would focus on the

fiscal side. we currently have the so-called fiscal cliff if no action is taken. there is going to be a very substantial increase in taxes and cut in spending on january 1st spending on january 1st of the coming year. the cbo has suggested if that's allowed to take place it would cause unemployment to begin to rise and might throw the economy back into a recession. i think one very basic thing that could be done to help address the recovery, the weakness of the recovery and the need for more employment would be to address the fiscal cliff while simultaneously addressing longer term fiscal sustainability issues, which we main, of course, very serious. that's one area where there's a lot of potential benefit. if the fiscal cliff isn't addressed, as i've said, i don't think our tools are strong enough to offset the effects of a major fiscal shock, so we'd have to think about what to do in that contingency. i think it's really important

for the fiscal policymakers to work together and try to find a solution for that. >> i have to questions. one is in the projections in the economic inflation projections yor, you foresee a low inflation by 2015. not you personally but the fomc. i'm wondering, if you look at the growth rates, you have growth rates up to about 3.4 percentage points in 2014 and 2015. how long do you think it might work that you have such strong growth and no inflation pressure? the second question is a lot of economists don't see too much effect out of a further round of qe-3. are you worried that in promising that you will do

whatever you can, even if it's small, that you give some kind of cut to the fiscal policy and to congress not to do enough on their side of the policy action? >> well, the -- on inflation, we do anticipate at some point what's normal in a recovery, given that the economy failed very quickly and there's a lot of unused capacity, there's a lot of slack in the economy, it would be normal there would be a period the economy would grow faster than trend in order to make up the slack that was created. so we don't anticipate the economy is going to be overheating any time soon. as long as we pay close attention to inflation expectations as well as the trajectory of the economy, we think inflation will remain close to our 2% target. on your second question, certainly there's a range of

views on how effective these tools are. i spent a lot of time, as my colleagues have, looking at the evidence. the staff here have done a great deal of work on the question. the bottom line for most of the research is that while these tools are not so powerful that they can solve the problem, they are at least able to provide meaningful support to the economy. our job is to use the tools we have to meet our mandate, which is maximum employment and price stability. if we have tools that we think can employ some assistance and we're not meeting our mandate, then i think our obligation is to do what we can. we'd like to see policies across the board to help address these issues, but, you know, that's not our province. we are the monetary policy authorities. our job is to use monetary policy as effectively as we can.

>> mr. chairman, there have been concerns raised, questions raised by people like columbia professor michael woodford and others about the credibility of your forward guidance on the path, future path of the federal funds rate. the idea being that to the extent it's conditional, it's not really convincing and doesn't provide the kind of confidence that you referred to. in this latest statement, you've removed some of that conditionality and particularly struck by the statement that the committee expects that a highly accommodative stance of monetary policy or remain appropriate for considerable time after the economic recovery strengthens, i assume that was done to make

your forward guidance more credible. yet, the question remains whether, you know, as the economy picks up steam, whether the fomc will really follow through and keep rates low or whether you will do as the fed has always done and begin to raise the funds right. >> well, that's an important question. michael woodford, who by the way is my former colleague and co-author and friend, so i know him quite well, know his work quite well. i think actually the thrust of his research is that forward guidance, communication about future policies, in fact, the most powerful tool that central banks have when the interest rate is close to zero. he advocates policies like nominal gdp that would essentially require credibility lasting many years. the implication being that the fed would target the nominal level of gdp and promise to do that for many years in the future, even if inflation rose

as part of that policy. so his own perspective is that credibility, is the key tool that central banks have in order to get traction at the zero lower bound. whether we have the credibility to persuade markets that will follow through is an empirical question. the evidence, which i discussed recently, is when we've announced extended guidance that financial markets have responded to that, that private sector forecasters have changed their estimates of what unemployment and inflation will be when the fed begins to remove accommodation. so the empirical evidence is that our announcements do have considerable credibility. i think there's a good reason for that. which is that we have talked a lot, both publicly and privately, about the rationale

for maintaining rates low even as the economy strengthens. i think the basic ideas are broadly espoused within the committee. there is consensus that even as personnel change and so on going forward, that this is the appropriate approach. by following through, we will have created a reserve of credibility that we can use in any subsequent episodes that occur. >> donn lee with the "l.a. times reque ." with the mortgage rates at historic lows, how do you think your actions would further drive down the rates? what would that look like? what would a meaningful effect

mean? >> well, again, as i mentioned before, it's true that our mortgage-backed securities purchases ought to drive down mortgage rates and put more pressure on mortgage rates and create more demand for homes and more refinancing. but it will depend ultimately on several things. one will be on the amount we do, the amount of purchases we do. that will be a function of how the economy evolves. if the economy is weaker, we'll do more. in those cases, probably rates would be low at any case because the economy is looking weak. if the economy is stronger, strong enough to create improving labor market conditions, we won't have to do as much. so the amount that we do depends on how the economy evolves. since i don't know how much we'll end up doing, it's hard to give you an exact estimate. so i think that's -- you know,

in terms of how many homes and those kinds of questions, again, i think the markets are looking a little better. i think that house prices are beginning to rise in some markets. we should encourage to look at people homes. we'll encourage lenders to make more mortgage loans. that has been one of the missing pistons in the engine here. housing is usually a big part of a recovery process. we haven't had that nearly to the usual extent. to the extent that we can support housing, i think that would be a very useful outcome. >> there doesn't seem to be that many people who could qualify for refinancing. can we expect a meaningful effect on increasing refinance activity? >> i think there will be some, but you get more benefit when people buy homes. sales of homes are down still, but