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Fed cuts monthly bond purchases and sounds upbeat

Published on NewsOK Modified: April 30, 2014 at 3:54 pm •  Published: April 30, 2014
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Yellen's message marks a shift from the approach her predecessor, Ben Bernanke, took over the past five years. Under his leadership, the Fed sought to be as publicly specific as possible about its intentions. And it did so by focusing primarily on the unemployment rate.

In December 2012, for example, the Fed said it intended to keep its benchmark short-term rate near zero at least as long as unemployment remained above 6.5 percent. The idea was to signal roughly how long the Fed was committed to keeping borrowing rates at record lows to spur spending and economic growth.

Yellen has said the unemployment rate, now 6.7 percent, overstates the health of the job market and economy and that the Fed must assess a range of barometers. She has expressed concern, for example, that a high percentage of the unemployed — 37 percent — have been out of work for six months or more and that pay is scarcely rising for people who do have jobs.

Some economists have expressed concerns that Yellen's decision to shift away from the Bernanke Fed's approach of providing specific guideposts for a future rate increase — its "forward guidance" — could end up confusing markets and contributing to unwanted turbulence.

Yellen also faces skepticism from some fellow Fed members on inflation. The Fed becomes concerned if inflation goes too much above or below its 2 percent target. The inflation index the Fed monitors most closely is measuring about 1 percent.

Some critics on the Fed say its efforts to keep rates super-low have elevated the risk of igniting inflation or inflating bubbles in assets like stocks or homes. Others counter that inflation remains too far below the Fed's target and that rates should be kept historically low.

The Fed has cut its monthly bond buying from $85 billion. If the economy keeps improving, it will likely keep paring its purchases until ending them late this year. The pullback is expected despite tough challenges the economy faces, from a slowing housing recovery to sluggish wage increases to persistent long-term unemployment.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, said in a research note that the Fed doesn't appear alarmed by signs of weakness in the housing market.

"The Fed does not view ever-increasing home sales as a necessary condition for the gradual normalization of policy," Shepherdson said.

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AP Economics Writers Paul Wiseman, Josh Boak and Christopher S. Rugaber contributed to this report.