Federal Reserve Chairman Ben Bernanke said the end of the Fed’s $600 billion bond-buying program in June probably won’t have a “significant” effect on financial markets or the economy, and the central bank will likely continue reinvesting maturing debt after June.
“We are going to complete the program at the end of the second quarter,” he said at his first press conference following a policy meeting. “The end of the program is unlikely to have a significant effect on financial markets or the economy.”
Bernanke spoke after the central bank today reiterated its view that surging commodity prices are likely to have a transitory effect on inflation and agreed to finish its program of large-scale asset purchases on schedule. In his press conference, Bernanke said the central bank is likely to continue reinvesting its securities holdings, including mortgage-backed securities, as they mature even after June.
“We are going to continue to reinvest maturing securities, both Treasurys and MBS, so the amount of securities that we hold will remain” approximately constant, he said. “The amount of monetary policy easing should remain constant going forward from June.”
When the Fed begins unwinding its record monetary stimulus, “it’s very likely that an early step would be to stop reinvesting all or part of the securities which are maturing,” he said. “That step, though a relatively modest step, does constitute a policy tightening,” Bernanke said.
Bernanke has signaled he’ll maintain record stimulus until job growth accelerates and the recovery is robust enough to withstand tighter credit. The Fed chief has said he expects that a surge this year in fuel and food costs will have only a passing inflationary impact, differing with Fed regional bank presidents who say low borrowing costs may push up prices.
The Fed left its benchmark interest rate in a range of zero to 0.25 percent, where it’s been since December 2008, and retained a pledge in place since March 2009 to keep it “exceptionally low” for an “extended period.” The central bank will keep reinvesting proceeds of maturing mortgage debt purchased in the first round of large-scale asset purchases that lasted from December 2008 to March 2010.
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