Bernanke lets Wall Street down easy: Stimulus to end, but not yet (+video)
Investors had anxiously awaited clarification on the Fed's plans for its stimulus program, so a drop of only 1 percent on Wall Street could be seen as a communications success for Bernanke.
When stock prices fall 1 percent in a single day, that’s a move that’s sizable but not too unusual. So perhaps Ben Bernanke should feel pretty good about his latest effort to communicate Federal Reserve policy and manage investor expectations.Skip to next paragraph
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Investors around the world were anxiously awaiting clarification of how long the Fed will continue its programs of monetary stimulus for the economy.
On Wednesday Fed Chairman Bernanke said one of those supports – a policy of buying about $85 billion in bonds each month – could start phasing out later this year.
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But he characterized this as easing up on the accelerator, not applying the economy’s monetary brakes.
US stock prices took a dive of about 1 percent as he spoke. Bernanke wasn’t announcing a change of policy, but he had a delicate task of explaining the Fed’s looming decision more clearly – while not boxing the central bank into any future action.
Investors have been strongly influenced by Fed policy ever since the financial crisis of 2008-2009, so a market swing of 1 percent isn’t that big a deal on a day that the Fed chairman is speaking.
Bernanke said the Fed might slow the pace of its bond-buying program, known as quantitative easing (QE), later this year if the economy keeps improving. And the Fed might stop expanding its portfolio of Treasury and mortgage bonds altogether when the unemployment rate falls to 7 percent.
That could come in 2014. Currently the US jobless rate is 7.6 percent. Bernanke likened this to simply removing pressure from a car’s accelerator when it reaches “cruising speed,” rather than to an outright tightening of monetary policy – which would be akin to applying the brakes.
“Our policy is in no way predetermined,” he added, in one of several reminders during his press conference that the Fed’s policymaking committee won’t be bound to a timetable if economic conditions change.
On interest rates, another key Fed policy, Bernanke said the Fed’s outlook currently envisions no policy change before 2015. That is, most members of the policy committee don’t expect to raise the Fed’s short-term lending rate for banks from its current low level of zero to 0.25 percent.
When the rate does start to rise, it is “likely to be gradual,” Bernanke said.
The Fed chairman refused to comment on another issue of hot speculation: Whether he wants to leave his job when the current four-year-term expires early next year.
“I don't have anything for you on my personal plans,” he said.
President Obama, who would be responsible for nominating a new Fed chairman, said this week that Bernanke has “already stayed a lot longer than he wanted.”