Bernanke’s Final News Conference – Taper Down

The key thing to remember is that quantitative easing is not ending, it’s barely being reduced. Starting in January, the Federal Reserve will taper QE to a US$ 75 billion pace. Essentially, instead of US$ 40 billion of asset purchases in mortgage-backed securities, the Fed will purchase US$ 35 billion per month. Instead of purchasing US$ 45 billion longer-term Treasury securities, the Fed will purchase US$ 40 billion per month.

Capital markets are happy with Bernanke’s taper announcement; the Dow Jones Industrial Average shot up nearly 1% within 20 minutes of the Federal Open Market Committee’s statement being released. Federal Reserve Chairman Bernanke made it clear that Yellen’s ascension had no bearing on timing of the call to taper.

When questioned on whether the Fed would use other types of means for economic stimulation, Bernanke tiptoed around the idea of favorable discount window rates to banks that could prove they were loaning money to small businesses and households. But he mostly dismissed the idea stating that he feels that tight credit is not the U.S. economy’s main problem.

The FOMC did not modify its forward guidance. The threshold of the unemployment rate for a first rate hike is well below 6.5%. However, Bernanke noted that he will not hike rates merely because unemployment hits this threshold. He wanted to stress that the federal funds rate will remain near zero “well past” this threshold. Once the target is reached, Bernanke suggested that the Fed will look more closely at other types of employment figures, notably the labor force participation rate.

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