A long, strange trip for the Fed’s extraordinary stimulus

David Brancaccio Dec 16, 2013
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A long, strange trip for the Fed’s extraordinary stimulus

David Brancaccio Dec 16, 2013
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You may have not realized it, but we’ve all been part of a great lab experiment. What happens when our central bankers keep buying loads of bonds to stimulate the economy?  

But we’re entering a new phase of this experiment. How does the Fed extricate the economy, now that some parts of it seem addicted to the stimulus? With the guardians of stimulus and interest rates at the Federal Reserve meeting this week, economist Phillip Swagel of the School of Public Policy at the University of Maryland says the Fed’s bond-buying program might not be over yet, it’s likely the beginning of the end.

“I’ll be looking for whether they taper. I don’t expect them to announce the end of their bond purchases just yet,” Swagel says. “Everyone understands that the economy has picked up. The real question is whether they think it’s sustainable, and how much more progress they think they can make on the labor market if they continue the bond purchases just a little bit longer.”

While the government reported strong job growth in November, Swagel says it’s not necessarily an indicator that brighter days are here for the economy.

“The labor market has definitely improved,” he says. “A seven percent unemployment rate and [200,000] or 250,000 jobs per month are good, but by the standards of a normal recovery, they’re still not very good. And, the long term unemployment situation is still extremely difficult. And, I think the Fed will want to do more to fix that situation.”

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