Likely concerned about recent interest rate hikes, Federal Reserve Chairman Ben Bernanke Wednesday watered down his tapering talk in a Q&A session following a speech in Boston.
Bottom line: Even if the central bank begins pulling back its asset purchases by year’s end, it will still persist in providing a stimulus plan that will hold interest rates at low levels, while keeping an eye on the unemployment rate and inflation.
Apparently, the Fed policymakers wanted it to be known that the commencement of “tapering” does not mean higher interest rates.
The markets don’t necessarily agree. A big sell-off in U.S. Treasuries followed Bernanke’s news conference last month when he said tapering would likely be initiated late this year, and the Fed would bring an end to its $85 billion monthly bond and securities purchases sometime in 2014.
The average 30-year mortgage rate has surged to a two-year high in recent weeks, hovering close to 4.5 percent — although still in historically low territory.
Stocks and bonds reacted positively this time, making gains in after-hours after Bernanke’s remarks Wednesday.
“Highly accommodative monetary policy for the foreseeable future is what’s needed in the U.S. economy,” Bernanke said Wednesday in response to a question.
Bernanke also said high unemployment requires that the Fed press on with its stimulus. He also said he expects inflation to “come back up” closer to the central bank’s 2 percent goal.
Earlier Wednesday, the Fed released minutes of the Federal Open Market Committee’s June 18-19 policy meeting. The minutes indicate that many officials want to see more signs of employment rebounding before beginning the tapering of its monthly purchases bonds and mortgage-backed securities.
The minutes also refer to managing interest rates as a strategy that is not tied to the end of the Fed’s asset purchases. There was no indication of an end to keeping the benchmark federal funds rate at near zero, where it has been since late 2008 — unless unemployment and inflation return to ideal levels for the policymakers.
“Many members indicated that decisions about the pace and composition of asset purchases were distinct from decisions about the appropriate level of the federal funds rate, which would continue to be guided by the thresholds (unemployment and inflation) in the Committee’s statement,” the minutes said. In general, members continued to anticipate that maintaining the current exceptionally low level of the federal funds rate was likely to remain appropriate for a considerable period after asset purchases are concluded.”
- Mortgage Activity Slips Again on Still-Climbing 30-Year Rate
- Despite 'Do Not Call' Registry, Hi-Tech Fraudsters Fuel More Robocalls