Federal Reserve chairman Ben Bernanke
The transtasman currencies continued their relentless
climb yesterday, after Federal Reserve chairman Ben Bernanke
said he planned to keep interest rates at close to zero until
unemployment falls to 6.5%.
The kiwi rose to US84.51c and the Australian dollar was at
nearly $US1.06 after the announcement.
Unemployment in the United States is 7.7% but observers
believe the more accurate figure is 7.9%. Employees have left
the workforce and are not actively seeking work because of a
perceived shortage of jobs.
Mr Bernanke also said the Fed would continue to buy $US85
billion ($NZ1 trillion) a month of government bonds and
mortgage-backed securities to try to boost the economy.
But changes in the way it did that would mean more money
pumped into the economy.
''The committee remains concerned that without sufficient
policy accommodation, economic growth might not be strong
enough to generate sustained improvement in labour market
conditions,'' Mr Bernanke said in a statement.
Fed interest rates have been close to zero for several years
and the Fed again kept them below 0.25%.
Craigs Investment Partners broker Chris Timms said
surprisingly, the Fed adopted numerical thresholds for future
interest policy - something which had not been expected until
next year. The Fed had previously said it expected to
maintain rates at their current level until 2015. ''But in a
news conference, Mr Bernanke said the modified formulation
did not mean any change in the committee's expectations. It
still anticipates holding rates at the exceptionally low
range 'at least through mid-2015','' Mr Timms said.
The stated threshold of unemployment reaching 6.5% should not
be interpreted as the committee's longer-run target which
remained at 5.2% to 6%. Mr Bernanke said that by tying future
monetary policy more explicitly to economic conditions, it
should make it more transparent.
Other comments made by Mr Bernanke spooked markets and helped
keep the transtasman dollars at their recent highs.
He said the US economy was already being hurt by the fiscal
cliff standoff in Washington. The Fed believed the crisis
would be resolved without significant long-term damage. The
steep tax increases and spending cuts could be avoided with a
successful budget deal, he said.
However, the uncertainty surrounding the resolution was
already affecting consumer and business confidence and it had
led businesses to cut back on investment.
''Clearly, the fiscal cliff is having effects on the economy.
I am hoping that Congress will do the right thing on the
fiscal cliff. There is a problem with kicking the can down
Mr Bernanke repeated his belief that if the scheduled tax
hikes and spending cuts did take effect on January 1, they
would have a significantly adverse effect on the economy,
regardless of what the Fed might do.
''We cannot offset the full impact of the fiscal cliff. It's
just too big,'' he said.