The Week Ahead: Investors hold breath to hear Fed's message

June 15, 2013 

Is moderate enough? For months, the Federal Reserve has been describing the U.S. economy as growing at a moderate pace. While the growth has been positive, it hasn't been enough to move the central bank away from pushing money into the system with hopes of getting the economy to pick up speed.

The Federal Reserve embarked on a multibillion-dollar-per-month initiative to buy government and mortgage-backed bonds in December. While the strategy has been credited with helping keep long-term interest rates down, it also has been credited with helping fuel the stock market to new highs. As the months wear on, worries are building the effort is inflating stock prices and artificially lifting home prices with cheap money. Critics are concerned the usefulness of the strategy and the Federal Reserve's commitment to it are on the wane.

That's why the agency's statement on Wednesday afternoon will be scrutinized for clues as to the Fed's willingness to persevere. Chairman Ben Bernanke has warned against "premature tightening," although technically, a drawdown in bond purchases may not be considered interest rate tightening. The chairman also has signaled his group may start to taper off bond purchases in the months ahead.

Leaving investors, borrowers and consumers guessing is difficult and will feed volatility. On the other hand, not committing to a specific path at this point reserves the central bank's ability to respond in the months ahead. Clarity and consistency in monetary policy is important. But so is moderate flexibility.

Tom Hudson, a financial journalist based in Miami, is the former co-anchor and managing editor of "Nightly Business Report" on public television. Follow him on Twitter@HudsonsView.

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