Fed's Stein: 7 Percent Unemployment Goal for QE Clarifies Bernanke's Intent

Friday, 28 Jun 2013 08:28 AM

 

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Federal Reserve Governor Jeremy Stein said the Fed is providing more clarity about how it will wind down its $85 billion in monthly bond buying as unemployment falls toward 7 percent.

A comment by Chairman Ben S. Bernanke last week that the Fed’s purchases will probably end when the unemployment rate was around 7 percent is “an effort to put more specificity around the heretofore less well-defined notion of ‘substantial progress,’” in labor markets, Stein said in a New York speech.

Since Bernanke’s June 19 news conference, policy makers have emphasized that they plan to provide stimulus long after ending monthly bond purchases.

Bond yields have risen since Bernanke said the Fed may reduce its asset purchases later this year and end them around mid-2014 if the economy performs in line with its forecast.

At the start of the current round of bond purchases in September — with the most recent government report putting unemployment at 8.1 percent — the Fed couldn’t be sure how far it would need to expand its balance sheet to reach its goals, Stein said.

“As we get closer to our goals, the balance sheet uncertainty becomes more manageable — at the same time that the market’s demand for specificity goes up,” Stein said in prepared remarks.

A report next week from the Labor Department may show that the unemployment rate fell to 7.5 percent this month from 7.6 percent, according to the median forecast in a Bloomberg survey of economists.

Employers probably added 165,000 workers to payrolls, down from 175,000 the prior month.

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