BUSINESS

2 Fed officials stress that bond purchases won't be slowed until US economy strengthens

06/27/2013 11:17 EDT | Updated 08/27/2013 05:12 EDT
WASHINGTON - Federal Reserve officials sought Thursday to calm investors by assuring them the U.S. central bank won't start trimming its bond purchases until the country's economy has strengthened. They said any pullback in the Fed's stimulus will hinge on the economy's performance, not a calendar date.

The Fed is buying $85 billion a month in bonds to try to keep long-term interest rates low to spur borrowing and spending. Chairman Ben Bernanke jolted investors last week when he said the Fed will likely slow its bond buying this year if the economy continues to improve.

William Dudley, president of the Federal Reserve Bank of New York, said that if the economy proves weaker than the Fed forecasts, he expects the bond purchases to continue.

The Fed's timetable for its bond purchases depends on its outlook for the job market and the economy, Dudley stressed at a news conference.

"If labour market conditions and the economy's growth momentum were to be less favourable," he said, "I would expect that the asset purchases would continue at a higher pace for longer."

Jerome Powell, a member of the Fed's board in Washington, said investors appear to have incorrectly concluded that the Fed will taper its purchases soon.

"The path of rates will ultimately depend on the path of the economy," Powell said in an appearance at the Bipartisan Policy Center, a Washington think-tank . "I want to emphasize the importance of data over date."

The market turbulence began with comments Bernanke made in congressional testimony in May. They intensified with his remarks last week after the Fed ended a two-day policy meeting.

Bernanke said that if the economy improves as much as the Fed is forecasting, it expects to slow its bond purchases later this year. And he said the bond purchases would likely end around the middle of next year, when the Fed thinks the unemployment rate, now 7.6 per cent, will be around 7 per cent.

Analysts say Bernanke used the 7 per cent target to try to help investors gauge whether the economy is improving enough for the Fed to scale back its bond purchases.

Economists have said the earliest the Fed will start reducing bond purchases is at its September meeting. But some say the U.S. economy may not be strong enough for the Fed to slow its bond purchases before December and possibly not until next year.