Economic Watch: Federal Reserve Stays the Course in Final Bernanke Meeting

In one of his final moves as Federal Reserve Chairman, Ben Bernanke on Wednesday announced the central bank would continue trimming its monthly purchases of mortgage and Treasury securities that it recently started.

The Federal Open Market Committee voted in favor of tapering its bond buys from $85 million to $75 million per month, following their assessment of economic growth, noting activity had "picked up in recent months" although labor market indicators were seen as mixed.

“There was some speculation heading into today's meeting that the Fed would pause its tapering action in light of recent volatility in emerging markets. But…ahead of today's meeting, the Fed's focus is on the recovery in the U.S. economy and the improvement in the U.S. labor market, or at least the improvement perceived by committee members and the anticipation of further improvement,” said Sterne Agee chief economist Lindsey Piegza. “In last month's meeting minutes several committee members expressed concern about the declining, positive effect of quantitative easing and instead emphasized the potential risk of quantitative easing in terms of inciting financial market instability.”

She said, as a result, “the Fed had no reason not to continue its taper pathway nor maintain the moderate $10 billion pace of reductions.”

The just completed FOMC meeting is Bernanke’s final one, turning over the helm to Janet Yellen on Feb. 1 to preside over her first FOMC meeting in March.

“Although there are many similarities between Yellen and Bernanke, one difference may be a willingness to pause the tapering process,” said Piegza. “If, like December, January and February's employment reports fall short, Yellen is more inclined to call for a pause in tapering - not a reversal- but a pause. After all, Yellen was clear in her testimony before Congress that she supported more accommodation now to ensure the economy was on firmer footing for a stronger recovery down the road. In other words, Yellen may be less willing to continue to adjust policy based on expectations alone.”