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May 22, 2013
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via MacroScope

What *really* keeps the Fed up at night

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The Federal Reserve has a long list of worries about the unexpected consequences of its quantitative easing (QE) program. There’s the risk that all the bond-buying is quietly stoking bubbles in disparate asset classes, and the lingering risk of a future run-up in inflation, and even the political risk of balance sheet losses down the road. But above all, what really keeps Fed policymakers up at night might be their most immediate concern: that investors will overreact when they finally decide to reduce the $85-billion monthly pace of asset purchases.

In perhaps the starkest words yet from someone in Fed Chairman Ben Bernanke’s inner circle, here’s what New York Fed President William Dudley said about this in a speech to the Japan Society in New York on Tuesday:

May 22, 2013
May 22, 2013

Bernanke expected to stay the course on Fed policy

NEW YORK (Reuters) – Federal Reserve Chairman Ben Bernanke is not expected to hint at a pending policy change when he testifies before the U.S. Congress on Wednesday despite some speculation among investors that the central bank could soon reduce its massive bond buying program.

Bernanke’s close ally, New York Fed President William Dudley, stressed repeatedly on Tuesday that uncertain economic conditions meant it was too early to determine whether to taper the Fed’s $85 billion in monthly purchases.

May 21, 2013

Fed officials dampen speculation of imminent bond tapering

FRANKFURT/NEW YORK (Reuters) – Two senior Federal Reserve officials on Tuesday played down chances that the U.S. central bank would signal a readiness to taper bond buying at its meeting next month, dampening speculation the Fed might soon dial back its ultra-easy policy.

New York Federal Reserve Bank President William Dudley and St. Louis Fed chief James Bullard, both of whom will vote at the June 18-19 meeting, made clear further economic progress was needed before they would support curtailing bond purchases.

May 21, 2013

Fed’s Dudley ties bond buying to impact of US fiscal policy

NEW YORK, May 21 (Reuters) – The U.S. economy’s ability in
coming months to weather lower government spending and higher
taxes will be key to the Federal Reserve’s decision whether to
reduce monetary accommodation, an influential Fed official said
on Tuesday.

In a speech that could dampen some expectations of an early
reduction in the U.S. central bank’s bond buying program, New
York Fed President William Dudley said he cannot at this point
be sure whether policymakers will next reduce or increase the
amount of purchases, due to the “uncertain” economic outlook.

May 21, 2013