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Joined Nov 11, 2007
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Fed’s Stein: QE Tapering Set for Smooth Landing

“Jeremy Stein, in one of his last speeches as a Federal Reserve governor, said policy makers are set for a smooth end to their bond-buying program that won’t whipsaw investors with shifting interest-rate expectations.

Investors “almost uniformly expect” that the Federal Open Market Committee will continue tapering purchases in “further measured steps” through the rest of the year, Stein said Tuesday in remarks prepared for delivery in New York. The Fed has slowed buying in $10 billion increments over the past four meetings to $45 billion a month.

“We are currently in a very good position with respect to the market’s expectations for our asset purchases,” Stein said. “With these expectations in place, the execution of the taper itself becomes much easier, as we no longer have to worry about a step-down at each meeting sending a potentially misleading message about our intentions with respect to the future path of the federal funds rate.”

Fed Chair Janet Yellen and her colleagues are starting the process of dialing back the most aggressive policy actions in the central bank’s history, aiming to do so without destabilizing financial markets. They have kept the main rate near zero since December 2008 and more than quadrupled the balance sheet to almost $4.3 trillion.

Stein said he agrees with Yellen’s comment at her March press conference that the FOMC’s views on policy will evolve as the economy does, and that uncertainty shouldn’t be eliminated.

“As policy normalizes, forward guidance will be less commitment-like and, hence, a less precise guide to our future actions than it has been in the recent past,” Stein said…..”

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