Fed to Wind Down Bond Buying As Economy Improves

The Federal Reserve is on track to wind down its efforts toward economic stimulus, if unemployment meets projections in the coming months, the Fed said Wednesday.

Fed Chairman Ben Bernanke said the bank could begin reducing the pace of its ongoing bond purchases as soon as this year, according to a report by Bloomberg News, based on comments the chairman made during a press conference in Washington D.C. today.

The change is contingent upon meeting certain economic thresholds.

The Fed has been purchasing bonds at a rate of $85 billion monthly in an effort to stimulate economic growth. Following positive employment figures and projections for employment to improve further, the Fed may end that stimulus in 2014, Bloomberg reports.

“If the incoming data are broadly consistent with this forecast, the committee currently anticipates that it would be appropriate to moderate the pace of purchases later this year,” Bernanke said during the press conference. “If the subsequent data remain broadly aligned with our current expectations for the economy, we will continue to reduce the pace of purchases in measured steps through the first half of next year, ending purchases around mid-year.”

The impact on interest rates is not expected to materialize in the short term, however.

“Policy makers might aim for a lower unemployment threshold before considering an increase in short-term interest rates,” Bloomberg reports.

“In terms of adjusting the threshold, I think that’s something that might happen,” [Bernanke] said in the press conference. “If it did happen, it would be to lower it, I’m sure, not to raise it.”

He said an interest-rate increase is still “far in the future,” according to Bloomberg.

View the Bloomberg report.

Written by Elizabeth Ecker

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