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Top of the Agenda: Fed Gives Timeline for Ending Stimulus
The U.S. Federal Reserve may "taper" its bond-buying program (Bloomberg),
currently at $85 billion a month, toward the end of this year and
eliminate the program by mid-2014, Chairman Ben Bernanke said,
anticipating improved growth and lower unemployment. The current program
of quantitative easing has seen an unprecedented growth of the Fed's
balance sheet. While Bernanke cautioned that the Fed will continue to
provide stimulus if its expectations are not borne out, markets reacted adversely (MarketWatch):
stocks fell and Treasury yields reached their highest level since March
2012 as investors sold off U.S. government bonds. Similar
reverberations were felt across international markets (FT). The expectation that Bernanke will not serve (NYT) beyond his current term, which ends in January, has compounded market uncertainty.
Analysis
"From the Fed's point of view, quantitative easing was always a form of insurance.
Now that the likelihood of a disaster has diminished, they don't think
it will be necessary for much longer. But that reasoning depends on the
assumption that removing the insurance policy won't have any significant
negative effects," writes John Cassidy for the New Yorker.
"The Fed's policy of forward guidance has been a useful tool
in trying to damp expectations that it would choke off an emerging
recovery. It should use the same tools to also raise our confidence that
it won't allow inflation to fall any further," writes Justin Wolfers
for Bloomberg.
"There's
no question that Bernanke played a critical role in steering the global
economy back from the brink in 2008 and 2009. Yet his unusual brand of policy activism
did not end there--and here's where his legacy is more complicated. In
five years we might look back and say that he bought just enough time
for the United States to heal its economy--or that he's to blame for a
new bout of disastrous financial turmoil," writes Mohamed A. El-Erian
for Foreign Policy.
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