Highlights from the Bernanke Press Conference

The economic outlook: The FOMC cut its 2011 growth forecast to 3.1%-3.3% from 3.4%-3.9%, reflecting what Bernanke called the somewhat slower than anticipated growth in the first quarter.

The 2011 unemployment forecast was cut to 8.4%-8.7% from 8.8%-8.9%, still well above the long term average of 5.2%-5.6%.

On the weak Q1 economic outlook: when asked what has caused the weakness in the first quarter economic activity (the Q1 GDP revision, out tomorrow, is expected to be notably lower than the 3.1 percent gain in the first estimate), Bernanke noted weaker exports, as well as the weather...the Fed views most of the slowdown as "transitory," though he admitted that some factors may have a longer term implication, like construction, which was notably weaker.

On inflation: he repeated his expectation that "inflation will come down to a more normal level."

On the weak dollar: Bernanke spoke of the "safe haven effect"...that during the economic crisis money poured into U.S. Treasurys, driving up the dollar, and that what has happened recently is the unwinding of much of that trade.

On the high price of gasoline: Bernanke blamed the rapidly growing global economy, particularly emerging markets, where demand for oil is very strong, coupled with constrained supply from the Middle East. He said that accounts for "pretty much all" of the increase in inflation.

Bernanke noted that "the Fed can't create more oil" or control the growth rates of emerging economies, but it can try to prevent those increases from passing into the general economy and create broader inflation.

On unemployment: "the labor market is improving gradually" but the "pace of improvement is very slow" and we are still 7 million jobs below we were prior to the economic crisis.

On the end of QE2 (quantitative easing): the end of the program "is unlikely to have significant effects" on the markets or the economy because the Fed has telegraphed what they are going to do. What mattters for interest rates and stocks is the size of the portfolio the Fed holds...they will continue to reinvest maturing securities, both Treasurys and MBS, so the amount of securities they hold will remain relatively constant.

On what QE2 has done to help the economy: QE2 "was effective," with reduced spreads in credit markets, as well as reduced volatility, similar to a normal Fed easing. QE2 was not supposed to be a panacea, but relative to what they expected it was successful. Why not do more? Inflation expectations are higher, it's not clear we can get substantial improvements in payrolls without some additional inflation, so it's important to examine both parts of the mandate.

When asked about long-term unemployment, Bernanke noted that 45 percent of all unemployed have been unemployed 6 months or more, and the effects of this have been very serious...this might lead unemployment to stay high for a protracted period, and it is one of the reasons the Fed has been so aggressive. Job training and other interventions might be more effective than monetary policy.

On Standard and Poor's putting U.S. debt on a negative watch: "it didn't really tell us anything" because everyone knows the U.S. has a long-term problem.

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