The Free Press, Mankato, MN

Business

June 19, 2013

Fed suggests it's closer to slowing bond purchases

WASHINGTON (AP) — The Federal Reserve signaled Wednesday that it's moving closer to slowing its bond-buying program, which is intended to keep long-term interest rates at record lows.

Chairman Ben Bernanke said the Fed could start scaling back its $85 billion in monthly bond purchases later this year if the economy continues to improve. He said the reductions would occur in "measured steps" and that the purchases could end by the middle of next year.

Bernanke likened any reduction in the Fed's bond purchases to a driver letting up on a gas pedal rather than applying the brakes.

Speaking of the economy, he said, "The fundamentals look a little better to us."

He spoke at a news conference after the Fed ended a two-day policy meeting. After the meeting, the Fed voted to continue the pace of its bond-buying program for now. But it offered a more optimistic outlook for the U.S. economy and job market.

Investors reacted by selling both stocks and bonds. The Dow Jones industrial average was down 130 points soon after Bernanke's news conference began. The yield on the 10-year Treasury note shot up to 2.31 percent from 2.21 percent just before the statement came out.

In its statement, the Fed said the economy is growing moderately. And for the first time it said the "downside risks to the outlook" had diminished since fall.

Timothy Duy, a University of Oregon economist who tracks the Fed, called the statement "an open door for scaling back asset purchases as early as September."

The fact that the Fed foresees less downside risk to the job market "gives them a reason to pull back" on its bond purchases, Duy said.

The Fed said it will keep buying $85 billion a month in bonds until the outlook for the job market improves substantially. The goal is to lower long-term interest rates to encourage borrowing, spending and investing. It hasn't defined substantially.

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