As Bernanke Readies To Leave Fed, Investors Wonder About Stimulus

This week the Fed's influential Open Market Committee meets to discuss some unfinished business. With Chairman Ben Bernanke getting ready to turn things over to Janet Yellen, Fed policymakers must decide whether it's time to start winding down the "quantitative easing" program put in place years ago to protect the recovery.

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The stock market rebounded today on some positive corporate news. That follows a deep swoon last week as investors fretted about the outcome of a two-day Federal Reserve meeting that begins tomorrow. Investors are worried policymakers may decide to begin dialing back the Fed's huge 85-billion-dollar-a-month stimulus program. It all culminates Wednesday with the last scheduled press conference by outgoing Fed chairman Ben Bernanke.

NPR economics correspondent John Ydstie joins us to talk about it. Hi there, John.

JOHN YDSTIE, BYLINE: Hi, Audie.

CORNISH: So how likely is it that the Fed will begin ramping back?

YDSTIE: Well, there are a range of options. Some believe the Fed will wait until March, but there's also a group that believes the economic outlook has improved enough that there's a good chance, 50-50 or better, that the Fed could announce it is pulling back stimulus as early as Wednesday afternoon.

CORNISH: So what's the evidence that the economic outlook has improved enough for the Fed to pull back the stimulus?

YDSTIE: Well, the unemployment rate, you'll remember, dropped to 7 percent in the recent jobs report. That was a threshold that Chairman Bernanke had mentioned when he first began talking about the so-called tapering last June. Also, the report showed a couple of hundred thousand new jobs added to the economy. Another positive sign, a budget deal in Washington. The House passed it last week, the Senate takes it up this week, and that's progress. Remember, back in September, when the Fed surprised people by not beginning to pull back the stimulus, Fed policymakers pointed to the budget fight in Congress and the threat of a government shutdown. And that threat has clearly diminished.

CORNISH: Now, this stimulus - this so-called quantitative easing - it started under Ben Bernanke. Now that his term is winding down, doesn't he want to be involved in finishing it out?

YDSTIE: Well, Audie, if you'll allow me a "Star Trek" reference...

CORNISH: Yes, OK.

YDSTIE: ...Bernanke is more like Spock than Captain Kirk. He's made it clear he wants to end the stimulus as soon as possible, but not before the data show the economy is ready. And he's never suggested he's emotionally invested in getting the process started before he leaves. But he has suggested that he would want do it at a meeting which is followed by a press conference, so that he can respond to questions about the decision. And as we've said, there is a press conference after the meeting that ends on Wednesday.

CORNISH: So is there a possibility that Bernanke doesn't want to leave this to his successor, Janet Yellen?

YDSTIE: Not for policy reasons. Bernanke and Yellen, who's currently the Fed's vice chair, pretty much see eye to eye on the stimulus. So I don't think he'll rush it for that reason. By the way, the full Senate is likely to vote on Yellen's nomination this week and she's widely expected to be confirmed.

CORNISH: And one, last thing, John, each time there's been serious talk about the Fed beginning to pull back, the stock market sells off. And it did that last week. And it seems contradictory, right, since the Fed has said it will only pull back when the economic outlook brightens, which should be good for the stock market.

YDSTIE: You're right. But while a stronger economy should be good for stocks, many people believe the market has been pushed up artificially by the Fed's injection of this $85 billion a month into the financial system. In fact, one of the Fed's goals was to push investors out of safe government bonds and into stocks. That provides more support for U.S. companies and makes stockholders feel wealthier, so they spend more. So when there's a threat that less of that stimulus money will flow into the stock market, some investors get worried. They sell, as they did last week, and prices fall. But today in the market, investors seem to have regained some confidence that prices are about where they should be. And they've driven prices even higher.

CORNISH: That's NPR's John Ydstie. John, thank you.

YDSTIE: You're welcome, Audie.

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