Ben Bernanke testified today before Congress, and it seems as if investors may have shown some brief signs of being spooked about the ending of the Fed’s quantitative easing program. There’s been concern for some time that the U.S. government will end it very soon. Of course it’s going to happen, so the only question is just how soon it will happen. That’s what investors are worried about.
A Plan To End Quantitative Easing
It was revealed last week that the Fed had put into place a plan to end the federal stimulus plan, and there were warnings that the markets might overreact. Well, all it took was a few comments from Ben Bernanke to start heaping concerns on investors’ heads.
Overreaction To Ben Bernanke, Or Just Ordinary Concern?
CNBC’s Bob Pisani reported that traders began to overreact to the Fed’s testimony today. Someone asked Ben Bernanke if the Fed planned to cut back on its bond purchases before Labor Day. His response was that the Fed would do it if the data supported it.
Pisani said that not long after the comment, stocks came off their highs and bonds began falling. Investors seemed to think that the end to the federal quantitative easing was imminent. MarketWatch’s Greg Robb, however reported that although stocks started to fall on Bernanke’s tapering comments, they began to regain ground as Bernanke’s testimony continued. He also said treasuries reacted quickly to the testimony as well, pushing yields over 2 percent for the first time since March.
When Will The Quantitative Easing End?
Just a small percentage of investors believe the Fed will begin tapering its easing at the end of July, although that percentage gets incrementally larger with each of the Fed meetings after the July 30 meeting.
Ben Bernanke did say, “In the next few meetings, we could take a step down in our pace of purchase.” So in other words, we probably won’t see the easing start tapering right away, but we might see it by the end of the year—as the majority of investors seem to realize. Some are predicting that it will begin happening by the third quarter of this year, but at this point, the timing is just difficult to gauge.