Tuesday, April 16, 2013

"...What Fed Officials Are Saying About Winding Down Bond Purchases"

From the WSJ's Real Time Economics:
Tapering is all the rage these days when it comes to the Federal Reserve’s unconventional $85 billion-a-month bond-buying programs. Minutes from the Fed’s latest policy meeting in March showed a robust internal debate about exactly when the Fed should begin to gradually reduce the amounts of its monthly purchases of Treasury debt and mortgage-backed securities. But it’s clear a consensus has emerged that the central bank will indeed reduce the pace of its monthly purchases before stopping the programs altogether.

Since the March meeting, Fed officials have had to confront a jobs report that was far worse than expected and some other disappointing data, including falling consumer sentiment at home and weak economic growth in China — all of which could impact the Fed’s decision-making process about tapering its bond-buying programs.

Here’s a roundup (in no particular order) of what Fed officials have said on the subject since March 20, when the last policy meeting wrapped up.

Fed Chairman Ben Bernanke: In the press conference following the end of the March policy meeting, Mr. Bernanke emphasized that officials could decide to “vary the pace of purchases as progress is made toward its economic objectives or if its assessment of the efficacy and costs of the program changes.” He stressed that the FOMC wouldn’t change the rate of its bond purchases frequently, and it would do so based on “broad-based movement in a range of indicators as well as improvement in output and labor demand.”
“But when we see that the condition or the situation has changed in a meaningful way, then we may well adjust the pace of purchases in order to keep the level of accommodation consistent with the outlook, and, secondly, to help provide the markets with some sense of progress, how much progress is being made so that it can make better judgments,” Mr. Bernanke said. He also emphasized that the Fed could decide to dial its purchases back up if the job market was to weaken.

Janet Yellen, vice chairwoman of the Fed board, said in an April 4 speech endorsed a tapering strategy as a way to ease the end of the Fed’s easy-money policies. In my view, adjusting the pace of asset purchases in response to the evolution of the outlook for the labor market will provide the public with the information regarding the [Fed's] intentions and should reduce the risk of misunderstanding and market disruption as the conclusion of the program draws closer,” she said, though she did not offer a specific timeline for when the Fed would start slowing its pace of purchases....MORE