US Fed Holds Steady on Taper as Bernanke Era Ends
The US Federal Reserve issued the next wave of reductions in its bond-buying programme 29 January, reducing monthly asset purchases to US$65bn.
Last month, the Federal Open Market Committee (FOMC) – the Fed panel overseeing monetary policy – initiated the first move of reductions from US$85bn to US$75bn. At that time, Fed chairman Ben Bernanke took the opportunity to acclimate market expectations, hinting at future monthly reductions – provided economic vitals continued to show enough strength.
Wednesday’s statement confirmed Fed sentiment of “improvement in economic activity and labour market conditions over that period as consistent with the growing underlying strength in the broader economy.”
In a unanimous FOMC vote of 10-0 in favour, monthly asset purchases of mortgage-backed and government securities were reduced to US$30bn and US$35bn respectively. On the back of weak December US job numbers, a reactive jolt from emerging markets (EMs) to the initial taper and shaky currency markets, the decision to support continued reduction sets the tone for Fed sensitivity to short-term market fluctuations.
On interest rates, the Fed made no change to ‘forward guidance,’ offering only that it intends to hold the current target range at near-zero ‘well past the time’ that unemployment runs below 6.5%, while inflation remains below the Fed’s 2% target.
Bernanke Legacy: Final Policy Meeting
In his last FOMC meeting before exiting the Fed, chairman Bernanke leaves his position unlike how he found it. Having served eight years as Fed chief, largely embroiled in a financial crisis analogous to that of the Great Depression, Bernanke leaves a legacy of innovative – and at times, controversial – policy measures taken to thwart an economic collapse and sustain growth thereafter.
His push for greater central bank transparency has established a new Fed precedent, including routine press conferences and more deliberate public communications of Fed economic outlook and monetary objectives to help guide markets. Indeed, as Bernanke’s legacy traces the expansion of the Fed balance sheet, his final days nudging the wind-down serves as a notable capstone to his chairmanship.