A senior American central banker yesterday pushed back against market expectations that the Federal Reserve was set on rolling back its stimulus measures later this year, as new data showed the US economy continued to improve at a moderate pace.
The Fed chairman, Ben Bernanke, last week laid out the clearest timeline yet for when the central bank might begin reducing the size of its bond buying programme, currently worth $85bn (£55bn) a month. He indicated that if economic trends continue to improve, the value of the bond buys might be cut back later this year, and the programme might end altogether around the middle of next year.
That triggered a market panic, as investors rushed to prepare for the end of the support measures in the face of continued fiscal tightening.
Yesterday, however, as new data showed that US consumer spending had risen by 0.3 per cent in May, reversing the 0.3 per cent drop seen in April, and new claims for unemployment benefits had dropped by 9,000 to a seasonally adjusted 346,000 last week, Bill Dudley, the chairman of the New York Federal Reserve said the timeline was not set in stone.
Separate data showed that contracts to buy previously owned US homes had climbed to their highest level in more than six years in May.
"If labour market conditions and the economy's growth momentum were to be less favourable than in the [Federal Open Market Committee's] outlook – and this is what has happened in recent years – I would expect that the asset purchases would continue at a higher pace for longer," Mr Dudley said in a speech in New York.
As to expectations that the Fed's benchmark interest rates might also rise earlier than expected, Mr Dudley said the market soothsayers were "out of sync" with statements from Open Market Committee and "the expectations" of most of the policy-setting body's participants.
On the asset purchases, Mr Dudley added that even if the pace of bond buying were to slow, "it would still be the case that as long as the FOMC continues its asset purchases it is adding monetary policy accommodation, not tightening monetary policy."