Dec. 18 - The Fed will reduce its bond buying to $75 billion per month- but Chairman Ben Bernanke said it was not intended to be a tightening- and rates will likely stay low even longer. Bobbi Rebell reports.
The markets found strength in the Fed's decision to taper back its extreme monetary support of the U.S. economy- in large part because it came along with a clear commitment to keep rates low- even longer. The Federal Reserve will reduce bond purchases to $75 billion a month- from $85 billion. In his final press conference as the Chairman of the Federal Reserve- Ben Bernanke was firm- saying the tapering was not intended to be a tightening: SOUNDBITE: BEN BERNANKE, CHAIRMAN, U.S. FEDERAL RESERVE (ENGLISH) SAYING: "Purchases are still going to be continuing. We are still going to be building our balance sheet. The total amount of assets that we acquire are probably more than- was certainly more than was expected in September 2012 or in June of 2013. So we'll have a very substantial balance sheet which we'll continue to hold. And now we've also clarified our guidance that we will be keeping rates low well past unemployment of 6.5 percent." It was an extreme policy to begin with- something historically unprecedented and by definition unsustainable. But the size and timing of the move was unexpected by many- and very likely carefully calculated. Brian Jacobsen, Chief Portfolio Strategist at Wells Fargo Advantage Funds: SOUNDBITE: BRIAN JACOBSEN, CHIEF PORTFOLIO STRATEGIST, WELLS FARGO ADVANTAGE FUNDS (ENGLISH) SAYING: "The key thing is what they took with the left hand as far as the taper is, they gave with the right with enhanced forward guidance. Effectively, what they are saying is even well after the unemployment rate drops below 6.5 percent they expect that they will continue to keep the federal funds rate at their current level of about zero percent, unless of course we see inflation pick up." That reminder, that the Fed reserves the right to change its course, if data demands, is not new. But it is also something Jim Bianco of Bianco Research says should not be taken lightly. SOUNDBITE: JIM BIANCO, PRESIDENT, BIANCO RESEARCH (ENGLISH) SAYING: "The Fed is intent on giving us this forward guidance. That's telling us where they are going to go. But what we have got to keep in mind is every three months, the Fed changes the goal posts. And they changed the goal posts again today, where they said that now they are going to wait until they are well below 6.5 percent on the unemployment rate. Well that's a new one, and in the future they will probably change it again. And when they are ready to start raising rates they will change it again. And probably speed up the process and then start raising rates." When asked about his likely successor, Fed Vice Chair Janet Yellen, Bernanke said she fully supported the Fed's decision to taper.