Fed may taper later this year

The Federal Reserve confirmed on Wednesday expectations that it is looking to taper its bond purchases later this year. Bloomberg reports:

Federal Reserve Chairman Ben S. Bernanke said the central bank may start dialing down its unprecedented bond-buying program this year and end it entirely in mid-2014 if the economy finally achieves the sustainable growth the Fed has sought since the recession ended in 2009.

The Federal Open Market Committee today left the monthly pace of bond purchases unchanged at $85 billion, while saying that “downside risks to the outlook for the economy and the labor market” have diminished. Policy makers raised their growth forecasts for next year to a range of 3 percent to 3.5 percent and reduced their outlook for unemployment to as low as 6.5 percent.

“If the incoming data are broadly consistent with this forecast, the committee currently anticipates that it would be appropriate to moderate the pace of purchases later this year,” Bernanke said in a press conference in Washington. If later reports meet the Fed’s expectations, “we will continue to reduce the pace of purchases in measured steps through the first half of next year, ending purchases around mid-year.”

Investors were quick to act. Stocks fell, with the S&P 500 falling 1.4 percent on Wednesday. The yield on the 10-year Treasury note jumped to 2.36 percent, the highest since March 2012, from 2.19 percent the previous day.

Earlier on Wednesday, Japan reported that its exports rose 10.1 percent in May from the previous year. This was the fastest rate of year-on-year increase since December 2010.

Imports rose 10.0 percent though, leaving the trade balance at a deficit of 994 billion yen.