Federal Reserve To Continue Bond-Buying Program

Federal Reserve policymakers say the economy is doing slightly better than it was last fall, but the Fed's $85 billion per month stimulus program will continue for the time being. Speaking at news conference in Washington, D.C., Chairman Ben Bernanke indicated the Fed might begin tapering the stimulus program later this year. The Fed repeated earlier statements that it would hold short-term interest rates near zero until the jobless rate reaches 6.5 percent as long as inflation remains in check.

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ROBERT SIEGEL, HOST:

From NPR News, this is ALL THINGS CONSIDERED. I'm Robert Siegel.

We begin this hour with a financial forecast from Federal Reserve Chairman Ben Bernanke. He said today the economy is doing slightly better. And if the Fed's forecast holds, it will likely begin tapering off its economic stimulus later this year. By the middle of next year, the stimulus program could end, as NPR's John Ydstie reports.

JOHN YDSTIE, BYLINE: For the past month, U.S. markets have been volatile, worried that the Fed might begin closing the spigot that is injecting huge amounts of money into the U.S. financial system. The cash has supported big gains in the stock market and kept long-term interest rates at historically low levels. But markets got jumpy on May 22 when Bernanke told a congressional committee that Fed policymakers could decide to ratchet back the stimulus sometime in their next few meetings.

Today, following a two-day policymaking session, the chairman tried to clarify and calm the markets during a news conference. He said that if the economy continues to improve as the Fed expects, it could begin reducing its purchase of $85 billion worth of bonds each month.

CHAIRMAN BEN BERNANKE: And if the subsequent data remain broadly aligned with our current expectations for the economy, we would continue to reduce the pace of purchases in measured steps through the first half of next year, ending purchases around mid-year.

YDSTIE: The chairman said this plan, while more detailed than previous Fed guidance, did not represent a change in policy, and he tried to soften the message with this.

BERNANKE: To use the analogy of driving an automobile, any slowing in the pace of purchases will be akin to letting up a bit on the gas pedal as the car picks up speed, not to beginning to apply the brakes.

YDSTIE: And Bernanke repeated that his prediction for a slowdown in stimulus is not set in stone, but dependent on how the economy actually performs.

BERNANKE: And that should provide some comfort to markets because they will understand, I hope, that we will be providing whatever support is necessary. If the economy does not improve along the lines that we expect, we'll provide additional support.

YDSTIE: But the markets were not comforted. Interest rates rose sharply during Bernanke's remarks, and stocks fell. The Dow Jones industrials ended down 206 points, and all major indexes lost more than 1 percent.

Former Fed Governor Randall Kroszner, now a professor at the University of Chicago's Booth School of Business, said Bernanke's explicit language was an attempt to be more transparent. He also agreed with the chairman that it didn't represent a change in policy.

DR. RANDALL KROSZNER: The markets, I think, were hoping for something else. But I think if you looked at the Fed's statements and its words more carefully, this is really just a logical follow-through from what they have been saying over the last meeting or two.

YDSTIE: The other issue markets hoped might get clarified was Ben Bernanke's future as chairman. His current term ends in January. And this week, President Obama said Bernanke had stayed longer than he wanted to and was supposed to. Bernanke dodged any comment.

BERNANKE: I would like to keep the debate, discussions, questions here on policy. I don't have anything for you on my personal plans.

YDSTIE: John Ydstie, NPR News, Washington.

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