19 June 2013

The Fed Speaks

They won't be stopping the stimulus, but the short version is that they will continue to keep their foot on accelerator, but maybe not quite so much:
The Federal Reserve, increasingly confident in the durability of economic growth, expects to start pulling back later this year from its efforts to stimulate the economy, the Fed chairman, Ben S. Bernanke, said on Wednesday.

Mr. Bernanke, offering new details, said the central bank intends to scale down gradually its monthly purchases of Treasury securities and mortgage-backed bonds beginning later this year and ending when the unemployment rate hits 7 percent, which the Fed expects to happen by the middle of next year.

The central bank would then take several more years to unwind the rest of its extraordinary stimulus campaign, slowly raising short-term interest rates from essentially zero to more normal levels after the jobless rate has fallen to 6.5 percent or lower.

He emphasized, however, that the timing of the retreat depends on the health of the economy; if growth falters, the central bank would slow, or even reverse, the process. The expectations of Fed officials for the next several years, published Wednesday, are more optimistic than the consensus of private forecasters.

Pulling back “would basically say that we’ve had a relatively decent economic outcome in terms of sustained improvement in growth and unemployment,” Mr. Bernanke said. “If things are worse, we will do more. If things are better, we will do less.”
I would prefer that they target a higher inflation rate until unemployment falls before 6%, but who listens to me.

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