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Why the Fed’s Decision to Stop Buying Bonds Is a Smart Move

165 views  2013-06-24 02:30   Tagscontinued  warning  course  wanted  about 

Well, Ben Bernanke finally had his wits about him when he suggested that the Federal Reserve might begin to taper its bond-buying program by the year’s end, and then end the program altogether sometime in 2014.

In my mind, that shows that the Fed is thinking clearly—like it or not, that’s what Wall Street wanted.

Of course, there was also the warning that the cuts would only happen if the economy continued to grow at a rate that met the Fed’s expectation. That may or may not happen.

Bernanke said he will look to taper the bond buying when the unemployment rate falls to around seven percent. They expect that to happen by the end of this year.

The news drove bond yields higher, which is bad for equities.

The reality is that Bernanke likely won’t increase interest rates until the end of 2014, or even until 2015. The Fed will leave interest rates intact until the unemployment rate falls to 6.5%, or if inflation rises to above 2.5%.

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