Fed boss lays out a road map

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While the Federal Reserve’s official statement on monetary policy essentially offered no change from the previous meeting, Chairman Ben Bernanke told reporters that the central bank may begin to wind down its program of asset purchases later this year.

Since September, the central bank has been buying $85 billion worth of Treasury bonds and mortgage-backed securities each month, in a third round of so-called quantitative easing, dubbed “QE3.”

Bernanke said the Federal Open Market Committee believes it “may be appropriate to moderate purchases later this year.”  He described a possible scenario involving “measured steps” in adjusting purchases toward an eventual end around the middle of 2014.

Asked by Bankrate during his news conference why all of this wasn’t in the FOMC’s written statement, released shortly before his news conference, Bernanke said the details were a bit difficult to squeeze into a “terse” announcement. Plus, he said his comments did not reflect any change in policy but instead a desire on the part of the central bank to “make somewhat clearer the implications of our existing policy and how the policy would evolve in various economic scenarios.”

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FED UPDATE: Why all this ‘tapering’ talk from the Fed?

The Fed isn’t ready to shift course, but that day may be getting closer. Here’s what you need to know from our two analysts.


‘Letting up a bit on the gas pedal’

Bernanke compared the possible tapering of asset purchases to “letting up a bit on the gas pedal as the car picks up speed, not beginning to apply the brakes.” He indicated that the economy may be reaching “reasonable cruising,” so it would  be only natural to “ease pressure on the accelerator.”

The central bank boss said the plan he laid out “represents the consensus of the FOMC.”  He added that unemployment should be at 7 percent as the asset purchases subside, in keeping with the previous goal of “substantial improvement” in the labor market. He noted that the unemployment rate had been at 8.1 percent when the latest round of asset buying was unveiled last fall.

Further, Bernanke said the longer-term “target is not 7 or 6.5 percent — it is maximum employment.”

He said the key point is that the Fed’s policies “are tied to how the outlook evolves, and that should provide comfort to markets.” Bond yields have risen in recent weeks amid expectations that a “tapering” in asset purchases was in the offing. He also said asset purchases could be adjusted upward if economic or financial conditions worsen, which is not what the Fed is looking for.

No braking just yet

Returning to that automotive analogy, Bernanke said any move to apply the brakes — by raising short-term interest rates — is still far off in the future.

The Fed’s official statement reaffirms a pledge to keep benchmark rates at between zero and 0.25 percent for at least as long as joblessness remains above 6.5 percent.  He called that “a threshold, not a trigger.”

In the economic projections released along with the policy statement, 14 of 19 FOMC members see 2015 as the time when rates between to rise.

What about his future? He won’t say

Reporters also wanted to know about Bernanke’s own plans to continue to guide the central bank. Earlier this week, President Barack Obama was asked whether he might reappoint Bernanke beyond the end of his term in January 2014. The president seemed to refer to the Fed boss in the past tense.

Obama’s comment came in an interview with Charlie Rose for PBS. Rose said, “Some people would like to see you announce that you are reappointing Ben Bernanke as chairman of the Fed.” While offering praise, the president said of Bernanke, “He’s already stayed a lot longer than he wanted or he was supposed to.”

Asked at the news conference about future, Bernanke said he wanted to keep the discussion focused on monetary policy. He told reporters he had nothing to say about his personal plans.

His second five-year term ends in January 2014. When asked previously at news conferences and during congressional testimony whether he might consider staying on as chairman, Bernanke has essentially refused to answer directly.

Federal Reserve Vice Chair Janet Yellen is widely seen as the most likely successor to Bernanke. Paul Edelstein, director of financial economics at IHS Global Insight, says if Yellen is nominated by Obama and does get the job, the transition should be fairly seamless. He describes her as “very similar to Ben Bernanke.”

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