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Fed Chairman Ben Bernanke suggests agency is closer to slowing bond purchases

  • Federal Reserve Chairman Ben Bernanke speaks during a news conference in Washington, Wednesday, June 19, 2013. The Federal Reserve signaled Wednesday that it's moving closer to slowing its bond-buying program, which is intended to keep long-term interest rates at record lows. Bernanke said the Fed could start scaling back its $85 billion in monthly bond purchases later this year if the economy continues to improve. He said the reductions would occur in "measured steps" and that the purchases could end by the middle of next year. (AP Photo/Susan Walsh)

    Federal Reserve Chairman Ben Bernanke speaks during a news conference in Washington, Wednesday, June 19, 2013. The Federal Reserve signaled Wednesday that it's moving closer to slowing its bond-buying program, which is intended to keep long-term interest rates at record lows. Bernanke said the Fed could start scaling back its $85 billion in monthly bond purchases later this year if the economy continues to improve. He said the reductions would occur in "measured steps" and that the purchases could end by the middle of next year. (AP Photo/Susan Walsh)

  • Federal Reserve Chairman Ben Bernanke listens during a news conference in Washington, Wednesday, June 19, 2013. Bernanke declined Wednesday to address speculation that he will step down as chairman of the Federal Reserve in January when his term ends, saying he wanted to keep the attention on Fed policy.  (AP Photo/Susan Walsh)

    Federal Reserve Chairman Ben Bernanke listens during a news conference in Washington, Wednesday, June 19, 2013. Bernanke declined Wednesday to address speculation that he will step down as chairman of the Federal Reserve in January when his term ends, saying he wanted to keep the attention on Fed policy. (AP Photo/Susan Walsh)

  • Fed Chairman Ben Bernanke is on a television screen as trader James Dresch works in a booth on the floor of the New York Stock Exchange Wednesday, June 19, 2013.  The Federal Reserve offered a hint Wednesday that it's moving closer to slowing its bond-buying program, which is intended to keep long-term interest rates at record lows. (AP Photo/Richard Drew)

    Fed Chairman Ben Bernanke is on a television screen as trader James Dresch works in a booth on the floor of the New York Stock Exchange Wednesday, June 19, 2013. The Federal Reserve offered a hint Wednesday that it's moving closer to slowing its bond-buying program, which is intended to keep long-term interest rates at record lows. (AP Photo/Richard Drew)

  • Federal Reserve Chairman Ben Bernanke pauses during a news conference in Washington, Wednesday, June 19, 2013. Bernanke. The Federal Reserve signaled Wednesday that it's moving closer to slowing its bond-buying program, which is intended to keep long-term interest rates at record lows. Bernanke said the Fed could start scaling back its $85 billion in monthly bond purchases later this year if the economy continues to improve. He said the reductions would occur in "measured steps" and that the purchases could end by the middle of next year.  (AP Photo/Susan Walsh)

    Federal Reserve Chairman Ben Bernanke pauses during a news conference in Washington, Wednesday, June 19, 2013. Bernanke. The Federal Reserve signaled Wednesday that it's moving closer to slowing its bond-buying program, which is intended to keep long-term interest rates at record lows. Bernanke said the Fed could start scaling back its $85 billion in monthly bond purchases later this year if the economy continues to improve. He said the reductions would occur in "measured steps" and that the purchases could end by the middle of next year. (AP Photo/Susan Walsh)

  • Federal Reserve Chairman Ben Bernanke speaks during a news conference in Washington, Wednesday, June 19, 2013. Bernanke. The Federal Reserve said Wednesday that it will maintain the pace of its bond-buying program to keep long-term interest rates at record lows. But it offered a more optimistic outlook for the U.S. economy and job market. (AP Photo/Susan Walsh)

    Federal Reserve Chairman Ben Bernanke speaks during a news conference in Washington, Wednesday, June 19, 2013. Bernanke. The Federal Reserve said Wednesday that it will maintain the pace of its bond-buying program to keep long-term interest rates at record lows. But it offered a more optimistic outlook for the U.S. economy and job market. (AP Photo/Susan Walsh)

  • FILE - In this Nov. 19, 1997 file photo, FBI agents and New York state police guard the reconstruction of TWA Flight 800 in Calverton, N.Y. Flight 800 exploded and crashed July 17, 1996 while flying from New York to Paris, killing all 230 people aboard. Former investigators on Wednesday, June 19, 2013 called on the National Transportation Safety Board to re-examine the cause, saying new evidence points to the often-discounted theory that a missile strike may have downed the jumbo jet. (AP Photo/Mark Lennihan, File)

    FILE - In this Nov. 19, 1997 file photo, FBI agents and New York state police guard the reconstruction of TWA Flight 800 in Calverton, N.Y. Flight 800 exploded and crashed July 17, 1996 while flying from New York to Paris, killing all 230 people aboard. Former investigators on Wednesday, June 19, 2013 called on the National Transportation Safety Board to re-examine the cause, saying new evidence points to the often-discounted theory that a missile strike may have downed the jumbo jet. (AP Photo/Mark Lennihan, File)

  • Federal Reserve Chairman Ben Bernanke speaks during a news conference in Washington, Wednesday, June 19, 2013. The Federal Reserve signaled Wednesday that it's moving closer to slowing its bond-buying program, which is intended to keep long-term interest rates at record lows. Bernanke said the Fed could start scaling back its $85 billion in monthly bond purchases later this year if the economy continues to improve. He said the reductions would occur in "measured steps" and that the purchases could end by the middle of next year. (AP Photo/Susan Walsh)
  • Federal Reserve Chairman Ben Bernanke listens during a news conference in Washington, Wednesday, June 19, 2013. Bernanke declined Wednesday to address speculation that he will step down as chairman of the Federal Reserve in January when his term ends, saying he wanted to keep the attention on Fed policy.  (AP Photo/Susan Walsh)
  • Fed Chairman Ben Bernanke is on a television screen as trader James Dresch works in a booth on the floor of the New York Stock Exchange Wednesday, June 19, 2013.  The Federal Reserve offered a hint Wednesday that it's moving closer to slowing its bond-buying program, which is intended to keep long-term interest rates at record lows. (AP Photo/Richard Drew)
  • Federal Reserve Chairman Ben Bernanke pauses during a news conference in Washington, Wednesday, June 19, 2013. Bernanke. The Federal Reserve signaled Wednesday that it's moving closer to slowing its bond-buying program, which is intended to keep long-term interest rates at record lows. Bernanke said the Fed could start scaling back its $85 billion in monthly bond purchases later this year if the economy continues to improve. He said the reductions would occur in "measured steps" and that the purchases could end by the middle of next year.  (AP Photo/Susan Walsh)
  • Federal Reserve Chairman Ben Bernanke speaks during a news conference in Washington, Wednesday, June 19, 2013. Bernanke. The Federal Reserve said Wednesday that it will maintain the pace of its bond-buying program to keep long-term interest rates at record lows. But it offered a more optimistic outlook for the U.S. economy and job market. (AP Photo/Susan Walsh)
  • FILE - In this Nov. 19, 1997 file photo, FBI agents and New York state police guard the reconstruction of TWA Flight 800 in Calverton, N.Y. Flight 800 exploded and crashed July 17, 1996 while flying from New York to Paris, killing all 230 people aboard. Former investigators on Wednesday, June 19, 2013 called on the National Transportation Safety Board to re-examine the cause, saying new evidence points to the often-discounted theory that a missile strike may have downed the jumbo jet. (AP Photo/Mark Lennihan, File)

In a move that could send interest rates higher, Fed Chairman Ben Bernanke ended weeks of speculation yesterday by saying the Federal Reserve will likely slow its bond-buying program this year and end it next year because the economy is strengthening.

The Fed’s purchases of Treasury and mortgage bonds have helped keep long-term interest rates at record lows. A pullback in its extraordinary $85 billion-a-month program would likely mean higher rates on mortgages and other consumer and business loans.

Anticipating higher rates, investors reacted yesterday by selling both stocks and bonds.

Investors have been selling bonds and driving up yields since last month after vague signals from the Fed that higher long-term rates might be coming.

After a two-day policy meeting, the Fed upgraded its outlook for unemployment and economic growth. In a statement, the Fed said the “downside risks to the outlook” had diminished since the fall. Fed members voted to continue the pace of the bond-buying program for now.

At a news conference afterward, Bernanke said the Fed would slow its bond buying later this year as long as the economy sustained its improvement.

He said the pullback in purchases would occur in “measured steps” and could end by the middle of 2014. By then, he thinks unemployment will be about 7 percent.

Asked why the Fed’s statement made no mention of scaling back the bond purchases, Bernanke said he had been “deputized” to clarify the Fed’s policy and how it might vary depending on the economy’s health.

He likened any reduction in the Fed’s bond purchases to a driver letting up on a gas pedal rather than applying the brakes. He stressed that even after the Fed ends its bond purchases, it will continue to maintain its vast investment portfolio, which will help keep long-term rates down.

The ultra-low borrowing rates the Fed has engineered have been credited with helping fuel a housing comeback, support economic growth, drive stocks to record highs and restore the wealth America lost to the recession. Investors now think the days of record-low rates are over.

“There’s fear you’ll see an expanding economy, which has a tendency to push up interest rates,” said Jack Ablin, chief investment officer of BMO Private Bank.

Some investors worry that higher rates will cause investors to shift money out of stocks and into higher-yielding bonds. Others fear the economy might not be ready to absorb higher rates and that consumers and businesses could pull back on borrowing.

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