Fed officials move to calm investors

WASHINGTON — Federal Reserve officials sought Thursday to calm investors by assuring them the Fed won’t start trimming its bond purchases until the economy has strengthened. They said any pullback in the Fed’s stimulus will hinge on the economy’s performance, not a calendar date.

The Fed is buying $85 billion a month in bonds to try to keep long-term interest rates low to spur borrowing and spending. Chairman Ben Bernanke jolted investors last week when he said the Fed will probably slow its bond-buying this year if the economy continues to improve.

William Dudley, president of the Federal Reserve Bank of New York, said Thursday that if the economy proves weaker than forecasts, he expects the bond purchases to continue.


The Fed’s timetable for its bond purchases depends on its outlook for the job market and the economy, Dudley stressed at a news conference in New York. ‘‘If labor market conditions and the economy’s growth momentum were to be less favorable,’’ he said, ‘‘I would expect that the asset purchases would continue at a higher pace for longer.’’

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Jerome Powell, a Fed board member in Washington, said investors appear to have incorrectly concluded the Fed will taper off its purchases soon.

‘‘The path of rates will ultimately depend on the path of the economy,’’ Powell said at the Bipartisan Policy Center, a Washington think tank. ‘‘I want to emphasize the importance of data over date.’’

A third Fed official, Dennis Lockhart, president of the Atlanta Fed, said Thursday that ‘‘the pace of purchases, the composition of purchases and the ultimate size of the Fed’s balance sheet still depend on how economic conditions evolve.’’

Lockhart likened what the Fed is trying to do to the use of a nicotine patch to help someone give up smoking.


‘‘It seems to me the chairman said we’ll use the patch (and use it flexibly), and some in the markets reacted as if he said ‘cold turkey,’ ’’ Lockhart said in Marietta, Ga.

The market turbulence began with comments Bernanke made in congressional testimony in May. The turbulence intensified with his remarks last week after the Fed ended a two-day policy meeting.

Bernanke said that if the economy improves as much as the Fed is forecasting, it expects to slow its bond purchases later this year. And he said the bond purchases would probably end around the middle of next year, when the Fed thinks the unemployment rate, now 7.6 percent, will be around 7 percent.

Analysts said Bernanke used the 7 percent target to try to help investors gauge whether the economy is improving enough for the Fed to scale back its bond purchases.

Economists have said the earliest the Fed will start reducing bond purchases is at its September meeting. But some say the US economy may not be strong enough for the Fed to slow its bond purchases before December, and possibly not until next year.