UTSanDiego.com

Fed Preview: Bernanke Won't Budge

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NEW YORK (TheStreet) -- Don't expect the Federal Reserve to scale back its monthly $85 billion in purchases of mortgage-backed securities and longer-term Treasuries.

The Fed in December implemented $45 billion a month in longer-term Treasury purchases to fill the void left by the conclusion of its Operation Twist program, and economists and analysts since that move have discussed when the central bank may start to taper monetary stimulus.

"I can't imagine with all these ingredients in place that the Fed's going to come out Wednesday and say: 'Hey, yep, we're done, we're going to start tapering,'" said Lance Roberts, chief economist at StreetTalk Advisors.

Those ingredients include sustained economic weakness in the eurozone, cautious signs of a slowdown in China, Abenomics's recent stumble in Japan and U.S. data reports that suggest a non-inflationary environment, among other trends.

Critics of The Fed's quantitative easing efforts have feared that the massive purchases of bonds and securities would flood the marketplace with cash and trigger inflationary pressures in the system.

Consumer price index and producer price index reports since the financial crisis have consistently held below the central bank's target of 2% annual inflation. The Bureau of Labor Statistics reported Tuesday that the consumer price index inflation for all items increased 1.4% over the past year before seasonal adjustment.

"Data Wednesday morning specifically related to CPI suggests that the Fed's not going to change anything related to what was said in mid-May, beginning with the Jon Hilsenrath article in Wall Street Journal and then the follow up comments by Ben Bernanke on May 21," said Todd Salamone, director of research at Schaeffer's Investment Research.

Hilsenrath, who often reports market-moving information about the Fed on comments from officials inside the central bank, wrote June 13 that the Fed would try to calm market fears that central bankers would be close to raising short-term interest rates. The S&P 500 surged that day on the report.

Markets pulled back for a brief period on Monday after a Financial Times report said Chairman Ben Bernanke would use his press conference on Wednesday to signal that the central bank is close to tapering its quantitative easing programs. Markets scraped back some of those losses after the report's author, Robin Harding, tweeted that the Fed doesn't leak information to journalists so close to its policy-making meeting -- a suggestion that the FT report merely was a Fed preview.