The Federal Reserve Board announcement Tuesday once again sparked a wide variety of headlines and leads from the financial press. While its importance is obvious, I’m still always amazed at the different interpretations that come out of these public comments.
The Wall Street Journal’s headline “Fed Brightens Recovery View, Stays Silent on Bond Buying,” focuses on the good news. Here’s the lead:
Federal Reserve officials Wednesday upgraded their assessment of the job market but remained silent on when the central bank would begin pulling back on its $85 billion-per-month bond-buying program.
“Labor market conditions have shown further improvement in recent months,” the Fed said in its formal policy statement, though it noted that unemployment remains “elevated.” Fed officials also noted that they see “the downside risks to the outlook for the economy and the labor market as having diminished since the fall.”
Fed officials saw unemployment falling slightly faster and hitting a lower level than they did in their previous forecasts, from March. For instance, by the end of 2014, they see the jobless rate hitting between 6.5% and 6.8%, an improvement from March when they saw it hitting between 6.7% and 7% by then. At the end of last year, the forecast was 6.8% to 7.3%.
Despite the lower expected unemployment rate, Fed officials still expect to keep short-term interest rates low until 2015, their projections showed. Fourteen Fed officials said they didn’t expect to start raising rates until 2015, compared to 13 who said so in March.
Of course, the Journal story covered the Fed announcement before chairman Ben Bernanke spoke. That changed the story. There’s the Bloomberg story, which ran under the headline, “Bernanke Says Fed on Course to End Asset Purchases in 2014″:
Federal Reserve Chairman Ben S. Bernanke said the central bank may start reducing bond purchases later this year and end them in the middle of 2014 if the economy continues to improve as the central bank forecasts.
“If the incoming data are broadly consistent with this forecast, the committee currently anticipates that it would be appropriate to moderate the pace of purchases later this year,” Bernanke said today in a press conference in Washington. “If the subsequent data remain broadly aligned with our current expectations for the economy, we will continue to reduce the pace of purchases in measured steps through the first half of next year, ending purchases around mid-year.”
Bernanke spoke after the Federal Open Market Committee said today it would maintain the $85 billion pace of monthly asset purchases and that it sees the “downside risks to the outlook for the economy and the labor market as having diminished since the fall.” The FOMC (TREFQE2) repeated that it’s prepared to increase or reduce the pace of purchases depending on the outlook for the job market and inflation.
I guess it’s a good thing that we have access to different media options since these two leads seem to contradict each other. The New York Times story ran under this headline, “Fed Outlines Timeline for Winding Down Stimulus”:
Federal Reserve Chairman Ben S. Bernanke said Wednesday that the central bank intends to reduce its monetary stimulus later this year — and end the bond purchases entirely by the middle of next year — if unemployment continues to decline at the pace that the Fed expects.
Mr. Bernanke said that the Fed plans to continue the asset purchases until the unemployment rate falls to about 7 percent, the first time that the Fed has specified an economic objective for the bond-buying. The rate stood at 7.6 percent in May.
The Federal Reserve also struck notes of greater optimism about the economic recovery, saying in a statement released after a two-day meeting of its policy-making committee that the economy was expanding “at a moderate pace,” the job market was improving and risks to the recovery had “diminished since last fall.”
In a separate forecast, released at the same time, Fed officials predicted that the unemployment rate would decline more quickly than they had previously expected, falling to 6.5 percent to 6.8 percent by the end of 2014. They had predicted in March that the rate would be 6.7 percent to 7 percent.
Stocks fell on Wall Street after the Fed policy statement, with the Dow Jones industrial average down 1.2 percent, or about 170 points. Investors sold on the Fed’s indications that it would reduce its stimulus efforts starting later this year.
The Financial Times also thought that Bernanke offered up a timeline for ending the stimulus and ran this headline, “Bernanke says QE slowdown could start this year”:
Ben Bernanke, Federal Reserve chairman, offered the firmest timeline yet for tapering US central bank asset purchases, saying bond buying by the US central bank could be slowed this year and end altogether around the middle of next year.
In a statement following the latest meeting of the Federal Open Market Committee, Mr Bernanke said it would be “appropriate to moderate the monthly pace of purchases later this year,” assuming the Fed’s expectations for an improved economic outlook held true.
He added that there would be “measured steps through the first half of next year” to slow asset purchases, which would end “around midyear”. Mr Bernanke also said the bond buying, which is running at a monthly rate of $85bn, could end once the unemployment rate fell below 7 per cent. It was 7.6 per cent in May.
However, Mr Bernanke insisted that this scenario could change if the economic outlook changed. “Our policy is in no way predetermined and will depend on the incoming data and the outlook,” he said.
So the leads range from no timeline to the firmest timeline for ending the stimulus. At least all the stories agreed on the Fed’s target unemployment rate and that the policy isn’t set in stone. But given the range of headlines and leads, the comments aren’t likely to offer much reassurance or stability to the markets at this point.
