NEW YORK Federal Reserve Chairman Ben Bernanke said on Wednesday the U.S. central bank still expects to start scaling back its massive asset purchase program later this year, but left open the option of changing that plan in either direction if the economic outlook shifted.
While sticking closely to a time line he first outlined last month that the Fed would halt bond buying by mid-2014, when unemployment was projected to be around 7 percent, Bernanke went out of his way to stress that nothing was set in stone.
"As I noted, the economic outcomes that Committee participants saw as most likely in their June projections involved continuing gains in labor markets, supported by moderate growth that picks up over the next several quarters as the restraint from fiscal policy diminishes. Committee participants also saw inflation moving back toward our 2 percent objective over time. If the incoming data were to be broadly consistent with these projections, we anticipated that it would be appropriate to begin to moderate the monthly pace of purchases later this year. And if the subsequent data continued to confirm this pattern of ongoing economic improvement and normalizing inflation, we expected to continue to reduce the pace of purchases in measured steps through the first half of next year, ending them around midyear."
OMER ESINER, CHIEF MARKET ANALYST, COMMONWEALTH FOREIGN EXCHANGE, WASHINGTON:
"There is something in these comments for everybody. Bernanke has done a good job of leaving himself plenty of maneuver room in terms of policy based on the performance of the economy. I am a buyer of the dollar on these comments because Bernanke squarely puts tapering on the table in the coming months.
BRUCE MCCAIN, CHIEF INVESTMENT STRATEGIST AT KEY PRIVATE BANK IN CLEVELAND, OHIO:
"I don't think this is a surprise, especially since we're seeing some evidence of some better economic statistics. Our concern is that we're seeing very aggressive estimates for the second half of the year, and growth may not be that robust after QE ends. Even though there will be some QE, just smaller amounts, we could be disappointed by the quality of growth."
JACK ABLIN, CHIEF INVESTMENT OFFICER AT BMO PRIVATE BANK IN CHICAGO:
"There is a little more clarity around his plan. It's probably a fair assessment of the situation and it's probably what the average investor expected. This is probably the most clarity the chairman has offered in a while. We had a few communication mishaps earlier in the summer and my view is he just wanted to eliminate all doubt. Clarity is good."
JOE SALUZZI, CO-MANAGER OF TRADING, THEMIS TRADING, CHATHAM, NEW JERSEY:
"It looks like more standard ‘on the one hand this, on the other hand that,' which basically means more confusion coming from the Fed. I don't think anyone's going to be satisfied or get more clarity from this.
"The futures ticked up a little, about three points, but alongside that the yields have also ticked up as well. It looks like the market's a little confused at this point."
STOCKS: U.S. stock index futures turned positive BONDS: U.S. Treasuries yields fell.
FOREX: The dollar pared gains versus yean and the euro
(Americas Economics and Markets Desk; +1-646 223-6300)