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Will the Fed keep feeding investors?

Federal Reserve Board Chairman Ben Bernanke leaves after he testified at a hearing before the Joint Economic Committee on May 22, 2013 in Washington, DC.

Investors around the world are paying close attention to what is happening in Washington this week. The Federal Reserve committee responsible for setting monetary policy kicks off a two-day meeting today. The big question: Is the Fed going to scale back its bond-buying program? 

This is a chance for the Fed to take stock. Policymakers will pore over data. They’ll focus on key indicators, such as housing numbers and gross domestic product. And maybe most importantly?

“They’ll be looking at the rate of job creation, which has been reasonable, but by no means gangbusters,” says Randy Kroszner, the professor of economics at the University of Chicago.

The Fed buys $85 billion worth of bonds every month. That’s pushed interest rates down to where they are now: almost zero.

“Figuring out how to do it was hard,” says Karen Petrou, managing partner at Federal Financial Analytics. “Figuring out how to undo it will be even harder.”

Petrou says there’s a reason economists call this kind of monetary policy “innovative.” Because no one’s done it before. And she urges the Fed to be cautious:

“We need to quiet things down a bit, and get back to normal.”

Fed Chairman Ben Bernanke made some cryptic comments last month, about how soon the Fed could change course. That didn’t calm the markets, Petrou says. Maybe the best thing the Fed could give investors this week is clarity.


Audio Extra: Phillip Swagel, University of Maryland professor and former Treasury Department official, shares his take on Federal Reserve stimulus policy.

 

Audio Extra: Juli Niemann, analyst with Smith, Moore & Company, discusses what to expect from Ben Bernanke and the Federal Reserve this week.

 

About the author

David Gura is a reporter for Marketplace, based in the Washington, D.C. bureau.

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