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Fed may begin cutting stimulus program later this year: Bernanke

Last Updated: Thursday, June 20, 2013 - 11:52

Washington: Federal Reserve Chairman Ben Bernanke said Wednesday that the Fed could begin to ratchet down its key stimulus program later this year, signaling a growing confidence in the US economy.

The Fed's policy board kept its quantitative-easing program, aimed at holding interest rates down, locked in place for the meantime, saying that unemployment remains high and growth is still being held back by government spending cuts.

But Bernanke said that if growth continues to pick up pace, the Fed could begin reeling in the $85 billion-a-month in bond purchases sometime later this year, and bring the operation to a close by mid-year 2014.

Stressing that "our purchases are tied to what happens in the economy," Bernanke said that most of the members of the Federal Open Market Committee foresaw tapering the key stimulus program in the coming months.

"The committee currently anticipates that it will be appropriate to moderate the monthly pace of purchases later this year," he told reporters after the FOMC meeting ended.

In addition, he said, if the FOMC's current forecasts for the economy are met, "we will continue to reduce the pace of purchases in measured steps through the first half of next year, ending purchases around mid-year."

Bernanke's comments confirmed market expectations that the Fed sees growth tentatively firm enough to begin pulling back the quantitative-easing (QE) program, which aims at holding longer-term interest rates down.

His words sent bond prices and stocks down while the dollar climbed sharply, all in anticipation that an era of rock-bottom interest rates was near an end.

The S&P 500 closed down 1.4 percent and the 30-year Treasury bond yield jumped to 3.41 percent from 3.34 percent. The euro sank 0.8 percent against the dollar, to $1.3287.

"The market is now expecting a faster rate of Fed funds rate hikes starting in mid-2015," said Chris Low of FTN Financial.

US bond prices had already sunk interest rates and pushed higher over the past month in expectation that the Fed was close to turning the corner on five years of efforts to boost US growth, since the economic crisis erupted in 2008.


First Published: Thursday, June 20, 2013 - 10:07
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