Investors Brace For News Out Of Fed Minutes

Play associated audio

After the Federal Open Market Committee meeting last month, the financial markets "freaked out," according to David Wessel, economics editor of The Wall Street Journal.

Federal Reserve Chairman Ben Bernanke's remarks at the time sent a shockwave through the markets when he suggested the Fed's stimulus could end.

Wessel tells Morning Edition host Renee Montagne that "Bernanke tried to explain that if, and only if, the economy kept improving, the Fed would begin later this year to reduce the amount of money it's pumping into the economy later this year."

The markets interpreted Bernanke's comments to mean interest rates would increase, which prompted a sell-off in bonds and stocks.

The Fed is buying $85 billion in bonds a month to help keep borrowing low. That economic move has encouraged borrowing and spending.

Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, told an audience in Marietta, Ga., last month that what the Fed was trying to do for the economy was similar to how a smoker who wants to quit begins using a nicotine patch.

The markets, however, took it to mean the Fed was going to quit "cold turkey," Lockhart said.

"It took speeches by half a dozen other Fed officials and about a dozen other metaphors to clarify Bernanke's clarification," Wessel says.

Stocks have largely recovered since Bernanke made his stimulus comments, but there has been a surge in long-term interest rates.

The benchmark, 10-year Treasury rate "has gone from below 1.7 percent at the beginning of May to nearly 2.7 percent this week," Wessel says. And in the latest Freddie Mac survey, mortgage rates have gone from about 3.4 percent to 4.3 percent.

"The market is pushing up interest rates because the incoming news on the U.S. economy has been encouraging and in part because markets are anticipating the day when the Federal Reserve won't be trying so hard to keep rates down," he adds.

There could be further clarification of the Fed's plans at 2 p.m. Wednesday with the release of the minutes from the June meeting.

And there's always the chance the markets could get agitated again when Bernanke speaks about two hours later at a conference in Cambridge, Mass. He is expected to talk about the central bank's track record throughout its 100-year history.

Copyright 2013 NPR. To see more, visit http://www.npr.org/.

NPR

Remembering Alan Cheuse, Our Longtime Literary Guide

For some 30 years, Alan Cheuse was our guide to the best and worst of the written word. He passed away today at 75, after a car accident two weeks ago. NPR's Susan Stamberg has an appreciation.
NPR

Pesticide Drift Threatens Organic Farms

Conventional farmers use millions of pounds of pesticides each year to protect crops from weeds and insects. When those chemicals drift to neighboring property, they can ruin crops on organic farms.
NPR

Hillary Clinton To Release 8 Years Of Tax Returns

The returns will show that she and her husband Bill Clinton paid nearly $44 million in federal taxes since 2007, according to her campaign. "We've come a long way," she said.
NPR

Letting Go Of The Wheel: How Google Is Easing People Into Self-Driving Cars

Google has begun testing a new self-driving car this summer that is designed to work without a steering wheel. But as the Planet Money team reports, the company's biggest challenge may be convincing Americans to hop inside.

Leave a Comment

Help keep the conversation civil. Please refer to our Terms of Use and Code of Conduct before posting your comments.