WASHINGTON (MNI) – The following is an excerpt from Federal Reserve
Chairman Ben Bernanke’s press conference Wednesday:

QUESTION: (Projections) show inflation centered below 2% over the
medium term. I was just wondering if you could explain why? And secondly
you said that the Fed is prepared to do more if necessary. Could you
briefly comment on what sort of form additional action might take and
specifically what are the relative costs and benefits of doing more QE
versus more security extension?

BERNANKE:

Well, in terms of the inflation forecasts, again I think it should
be said as a preliminary point that economic projections have a lot of
uncertainty about them. We talk about that uncertainty in the survey of
economic projections. So we shouldn’t take a false sense of precision
from those numbers.

That being said, there is an issue about whether or not there is
sufficient stimulus in the economy.

As I mentioned earlier, one problem is that we are now at the zero
bound and that the type of unconventional programs that are available,
we know less about them, they have various costs and risks. And for that
reason, you may get a different amount of financial accommodation in
this kind of regime than you would in one where short-term interest
rates can be varied freely. So I think that’s really a critical issue.

Now, in terms of the costs, I would list briefly large asset
purchases increase the size of the balance sheet, and therefore
ultimately will make exit a more extended process. The large asset
purchases, which means that the Fed owns a larger share of a particular
type of asset, may have implications for market functioning, which in
turn might affect the ability of the Fed to have stimulative effects on
the economy.

There are some financial stability issues that we monitor and that
have to be taken into account.

So any kind of assessment of appropriate policy must look both at
the outlook for the economy, and at the costs and risks associated with
new measures, new steps that might be taken.

That being said, again, I think at this point we still do have
considerable scope to do more and we are prepared to do more. We will
continue to monitor the economy and see how things evolve.

And again we are looking primarily at the labor market in this
respect. If we’re not seeing a sustained improvement in the labor
market, that would require additional action.

In terms of balance sheet actions, we are unlikely to do more
maturity extension for a while because we have taken that about as far
as we can. So we would have to take other types of steps in order to add
to the amount of stimulus in the economy.

** MNI Washington Bureau: 202-371-2121 **

[TOPICS: M$U$$$,MMUFE$,MGU$$$,MFU$$$,MT$$$$]