Thursday, May 2, 2013

What the Fed Is Watching For

The Federal Reserve Board concluded its two-day meeting yesterday, and emerged saying that it was planning to keep its bond-buying stimulus program intact. Actually, the Fed hedged its bets: It noted that it might change policy "as the outlook for the labor market or inflation changes."

This is in keeping with other recent statements that the Fed will keep both its quantitative easing and its near-zero interest rates in place until the economy crosses some significant benchmarks. Fed chair Ben Bernanke has said in the past that he is watching for unemployment to drop to 6.5 percent - it's currently at 7.7 percent, although new figures are due out tomorrow - before he shifts his strategy.

Bernanke did leave open the possibility that the Fed would actually increase its bond buying, which is currently $85 billion a month. That topic hadn't really been broached until yesterday. Economic growth, as well as the performance of the market, would likely have to slow significantly before we cross that barrier, though.


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