By ensuring the Federal Reserve begins trimming its massive bond-buying stimulus before a more hawkish contingent of voters comes on board next year, Fed Chairman Ben Bernanke has greased the skids politically for his successor, Janet Yellen.
The U.S. central bank’s decision on Wednesday to begin to cut the pace of its monthly purchases by $10 billion, to $75 billion, gave the Fed’s bond-buying skeptics what they wanted: a roadmap out of a policy they felt risked fueling future inflation.
Barring an unexpected downturn, Bernanke told reporters at his last news conference as chairman that the central bank would likely end the bond-buying by late 2014.
The delicate policy change effectively shifts the Fed from an era of extraordinary stimulus to one of slowing the money presses and eventually starting to shrink the central bank’s nearly $4 trillion balance sheet.
For Yellen, it could neutralize potential opposition from regional Fed presidents who opposed the stimulus program and who rotate into voting spots on the Fed’s policy panel next year, giving her some breathing room to acclimatize.
