Bernanke Hints that US Fed’s Bond Buying to Slow

US Federal Reserve chairman Ben Bernanke has indicated that an end to its third round of quantitative easing (QE3) could be in sight with the Fed’s current monthly rate of US$85bn in asset purchases slowing in its next few meetings if unemployment continues to ease.

In testimony to Congress, Bernanke stressed that any move to adjust asset purchases was contingent on better US economic data, and the Fed could increase purchases again if the outlook got worse.

“If we see continued improvement and we have confidence that that is going to be sustained, then in the next few meetings, we could take a step down in our pace of purchases,” he said. “If we do that, it would not mean that we are automatically aiming towards a complete wind-down.”

His remarks sent share prices on Wall Street sharply lower towards the end of Wednesday’s trading session, as the minutes of April’s meeting revealed that several of the Fed’s officials were ready to start tapering off QE3 as early as June.

The minutes state: “A number of participants expressed willingness to adjust the flow of purchases downward as early as the June meeting”. Participants refers to all 19 Federal Open Market Committee (FOMC) officials, including some who have always opposed QE3.

According to reports, that would suggest a more likely date for the first slowing of QE3 is the Fed’s September meeting, which is followed by a scheduled press conference from Bernanke, and would allow more time to see how the US economy is responding to tighter fiscal policy.

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