Tags: Harding | Bernanke | taper | QE

FT's Harding: Bernanke Will Probably Indicate Tapering Wednesday

Tuesday, 18 Jun 2013 08:51 AM

By Dan Weil

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Federal Reserve Chairman Ben Bernanke "is likely to signal" Wednesday that the Fed "is close to tapering down" its massive quantitative easing (QE) program, according to Robin Harding of the Financial Times.

Bernanke will make that indication at his press conference after the Fed's policy meeting ends Wednesday, Harding predicted. But he thinks Bernanke will "balance that by saying subsequent moves depend on what happens to the economy."

Bernanke said last month that the Fed might approve a tapering in one of its next few meetings depending on the strength of the labor market. Unemployment was 7.6 percent in May.

Editor's Note:
Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

Those comments helped push the 10-year Treasury yield up to a 14-month high of 2.29 percent last week.

The Fed is currently purchasing $85 billion of Treasurys and mortgage-backed securities a month. The Fed has said it would keep up its purchases until there was a “substantial improvement” in the outlook for the labor market.

"Markets seem reluctant to acknowledge the improvement that is leading the Fed towards a taper of QE3," Harding wrote.

"But they also appear to be assuming, incorrectly, that any taper means the Fed has become less willing to support the economy's recovery. Mr. Bernanke is likely to push against both misperceptions, combining an upbeat message on how the strength of the economy will soon justify a taper, with a signal that further tapering depends on further improvement in the economy and in no way brings forward an interest rate rise."

That balancing act is very important, says Michael Gapen, a former section chief at the Fed's Division of Monetary Affairs and now an economist at Barclays.

"They are playing with fire when they want to talk about tapering but don't explain how it fits in with the rest of the exit strategy clearly," he told Bloomberg. "You risk the premature tightening that you want to avoid."

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

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