The Ottumwa Courier

AP National

January 29, 2014

Fed is expected to further trim bond purchases

(Continued)

The Fed decided in December to start trimming the bond purchases mainly because of evidence the U.S. economy is strengthening and needs less support from the Fed.

Turmoil in overseas markets has battered the currencies of Turkey, Argentina and other emerging economies. Those economies had previously enjoyed an inflow of investor money.

"Now, those countries are having to deal with a reversal of those flows," said David Jones, chief economist at DMJ Advisors and the author of a new book on the Fed.

Jones see the market turbulence as a "perfect illustration of the tricky transition that Yellen will have to manage" as the Fed winds down the programs it put in place after the financial crisis erupted in 2008. Still, he doesn't think the Fed will diverge from the pace of its bond-buying reductions unless market turmoil begins to slow the U.S. economic recovery.

Bernanke is ending his tumultuous eight-year tenure at the Fed amid tentative signs of a stronger U.S. economy. Employers created only 74,000 jobs in December, far below the 214,000 average of the previous four months. But many analysts think the lackluster December total marked a temporary pause or a statistical aberration.

Throughout 2013, the Fed bought $85 billion a month in Treasury and mortgage bonds to try to keep long-term rates down to stimulate borrowing by businesses and consumers.

Bernanke's first mention of a pullback in bond purchases, in mid-2013, triggered a mini-panic in the stock market. Afterward, the Fed stepped up its efforts to assure investors that a pullback in purchases didn't mean the Fed would soon raise the short-term rates it controls.

Since the recession ended in June 2009, economic growth has remained subpar. Analysts are forecasting a brighter 2014, in part because the federal government will impose less drag this year.

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