News Column

Rocking the Free Market World: Bye Bye, Bernanke

June 25, 2013

Isaac Cohen -- HispanicBusiness.com

Federal Reserve Chairman Ben Bernanke (file photo)
Federal Reserve Chairman Ben Bernanke (file photo)

The hint and the confirmation that the U.S. central bank will gradually reduce bond purchases and increase low interest rates caused volatility in world markets, to say the least.

Last week, after the quarterly press conference by Federal Reserve Chairman Ben Bernanke, stock markets fell, bond yields increased, several commodity prices declined, the dollar strengthened and capital flowed out of emerging markets.

At the press conference, Bernanke stated the conditions under which the policy change will take place, saying: "If things are worse, we will do more. If things are better, we will do less."

The last projections for the U.S. economy revealed the expectation by the Federal Reserve that economic growth will reach 3 percent to 3.5 percent in 2014, while the unemployment rate is expected to decrease to 7 percent. In such a case, the Federal Reserve will gradually reduce the purchases of Treasury bonds and mortgage backed securities by the end of 2014.

Additionally, the unemployment rate is projected to fall under 6.5 percent until 2015. Therefore, the federal funds rate will remain near zero well into the same year.

This also means that Bernanke will not be presiding over such decisions, because his mandate expires on Jan. 31, 2014.

In a recent TV interview, President Obama said Bernanke "has already stayed a lot longer than he wanted or he was supposed to."

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Isaac Cohen is an international analyst and consultant, a commentator on economic and financial issues for CNN en Espaņol TV and radio, and a former director, UNECLAC Washington Office.

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