Feds Guidance Questioned As Market Misreads Signals
The author of this text, John Hilsenwrath, explained that the Fed on Wednesday went beyond merely
deciding to keep buying the $85 billion a month of mortgage-backed securities and U.S. Treasurys that
it had been announcing for months it might start winding down. In the news conference after a two-day
strategy meeting, Fed Chairman Ben Bernanke also seemed to walk away from some of the regulation
he had given in June on how the bond-buying program would resume over the next year, making it even
less clear when the program will end. He also stated on Wednesday that he thought the resolution not to
initiate pulling back on bond purchases was right given a weaker economy than the Fed expected a few
months ago and one facing new threats from a fiscal showdown in Washington. He also said the Fed
might still proceed with a pullback in the months ahead if the economy cooperates. As a result, in his
defense, Mr. Bernanke said that he has never said the Fed would start the pullback in September and
that the decision always depended on the economys vigor.
Additionally, Fed officials place emphasis on communicating clearly to investors how theyre likely to
behave. They believe that guiding the public about the Feds future actions influences spending and
investing decisions in the present, making monetary policies more effective in helping the economy.
Part of the Feds strategy, for instance, is to assure the public that it will keep short-term interest rates
low for several years and that its bond-buying program will be in place as long as the economy needs
