Looking to Bernanke for stimulus clarification
WASHINGTON – Is the era of ultra-low interest rates nearing an end?
When he takes questions this week after a Federal Reserve meeting, Chairman Ben Bernanke will confront investors’ fears that rates are headed higher.
Financial markets have been gyrating in the 3? weeks since Bernanke told Congress the Fed might scale back its effort to keep long-term rates at record lows within “the next few meetings”- earlier than many had assumed.
Bernanke cautioned that the Fed would slow its support only if it felt confident the job market would show sustained improvement. And earlier in the day, he said the Fed must take care not to prematurely reduce its stimulus for the still-subpar economy.
Yet investors were left puzzled and spooked by a mixed message. Fear spread that the Fed would soon slow its $85 billion-a-month in bond purchases. Those purchases have been intended to hold down long-term borrowing rates to spur spending. Low rates are credited with helping fuel a housing rebound, sustain economic growth, drive stock prices to record highs and restore the wealth America had lost to the Great Recession.
Many fear that a pullback in the Fed’s bond purchases could boost long-term rates, trigger a stock selloff and perhaps weaken the economy.
On Wednesday, when the Fed ends a two-day policy meeting with a Bernanke news conference, the financial world will be looking to the chairman to settle the confusion.