Chairman Ben Bernanke will probably reduce the U.S. Federal Reserve's monthly bond buying in the fourth quarter to $50 billion from $85 billion U.S. as he begins to unwind record stimulus, economists said.
Policy makers must find a way to slow the pace of purchases enough to signal confidence the economy is strengthening without prompting a sudden rise in interest rates, said former Fed economists Michael Feroli and Joseph LaVorgna. They said that probably means the Fed, which concludes a policy meeting today, will follow a three-step strategy to wind down bond buying.
The Federal Open Market Committee plans to release a statement at 2 p.m. after a meeting in Washington. None of the 47 economists in the Bloomberg survey taken April 25-29 expects a decision at this week’s meeting to change the pace of purchases.
The Fed began purchasing $40 billion U.S. a month of mortgage- backed securities in September and announced in December additional purchases of $45 billion a month of Treasury securities.
The FOMC in a statement after its last meeting on March 20 reiterated a pledge to keep buying bonds until the labour market improves "substantially." Bernanke said at a press conference the same day that policy makers are considering a proposal to "appropriately calibrate" bond purchases based on the performance of the economy, including the job market.
The bond purchases, known as quantitative easing, have helped push up stock prices and reduce bond yields.
