Yesterday, the markets sat idly by waiting for Ben Bernanke and Company to make a statement about their plans for the economy. Below is a reader's digest version of what occurred:
... on Wednesday Bernanke, a former Princeton University professor, took pains to make the Fed's intentions as clear as possible.
Going beyond the formal statement the Fed's Open Market Committee released after its two-day meeting, the chairman said at a news conference that it would "be appropriate to moderate the monthly pace of purchases later this year" and to end them in 2014 if the economy performed as well as the Fed expects it to. He said the bond-buying would probably end when the unemployment fell to "the vicinity of 7 percent" from May's 7.6 percent.
Bernanke explained that the rest of the Fed's policymaking committee had "deputized" him to expand on what fit "into a terse FOMC statement."
|Ben Bernanke-Yesterday's Power Broker|
As he elaborated, markets tumbled: The Dow Jones industrials fell 206 points, or 1.4 percent, to 15,112. Investors dumped bonds, pushing the yield on the benchmark 10-year Treasury note up to 2.35 percent, its highest level since March 2012.
Since becoming chairman in 2006, Bernanke has labored to make the famously secretive central bank more open to the public. In 2011, he began holding regular news conferences to clarify Fed policy, something that would have been unthinkable under his predecessor, Alan Greenspan, who took pride in being as baffling as possible.
The Fed also released fresh economic projections Wednesday. Fed officials predicted that unemployment will fall a little faster this year, to 7.2 percent or 7.3 percent at the end of 2013. They think the rate will be between 6.5 percent and 6.8 percent by the end of 2014, better than its previous projection of 6.7 percent to 7 percent.
The Fed also said it would keep short-term rates at record lows at least until unemployment slides to 6.5 percent.
Bernanke said any reductions in bond buying, which keeps long-term rates low, would occur in "measured steps" and could be reversed if the economy proves weaker than the Fed expects. He likened any pullback in bond purchases to a driver letting up on a gas pedal rather than applying the brakes.