Fed officials try to defuse market

  Officials of the U.S. Federal Reserve (Fed) is trying to explain to the market that the central bank has not started tightening monetary policy.


    In an unusual move on Monday, Mr Narayana Kocherlakota, Minneapolis Fed President, has held an extraordinary press conference by phone with reporters to emphasize that the Fed pledged to continue buying program bonds until the unemployment rate will decline more and still keep short-term interest rates near zero for a long time to come, even if activity bonds terminated.


    "We have raised the point that whenever talking about policy," Mr. Kocherlakota said in a telephone conversation with reporters.

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    The market was rocked on Wednesday last week, the Fed proposed a roadmap for the decrease in the pace of bond purchases. The program aims to lower long-term interest rates in the hope of promoting asset prices and stimulate hiring, spending and investment. Fed holding short-term interest rates near zero to stimulate growth. Some investors think that narrowing the bond purchases could be precursor to raising short-term interest rates. Long-term interest rates rose dramatically after the Fed's message and stock prices plummeted.


    Fed has caused worry for market making its message. This agency intends to withdraw from the bond-buying program in case the economy to achieve progress on growth and jobs in the years to come and will not raise short-term interest rates until the unemployment rate does not decrease much more.


    Mr. Kocherlakota acknowledges the message of the central bank is not actually full, causing the market misunderstood. Fed has "given enough information about how details of their policy strategies will be implemented when the economic recovery progresses," Kocherlakota said. "We really have to do what we can to make the message clearer."


    Mr. Kocherlakota is one of Fed officials have strongly inclined to support the monetary policy loosening. He wants to correct the orientation that the Fed is sending the plan to the public interest. Since December last year, the Fed announced it would keep short-term interest rates near 0 until the unemployment rate fell to 6.5%. That means the Fed will keep interest rates this longer, because the unemployment rate in May was 7.6%. He also wants Fed Kocherlakota official signals that the agency will not terminate the quantitative easing program as long as the unemployment rate is higher than 7%.


    A wave of Fed officials spokesman stood out this week was started. Dallas Fed President Richard Fisher, in a message sent to reporters following a speech in London on Monday, has for the most members on the financial markets as "wild pigs" eat message to the Fed's last week. He also sought to dispel the anxiety of the market. "We have not done anything (to stop the stimulus package)," Fisher said at the event in London. "We're not talking about a retreat. We're talking about pulling things back. "


    In a speech on Sunday in Basel, Switzerland (published Monday), at the New York Fed president, William Dudley reiterated his view that the loose monetary policy of the Bank Central was not enough to boost economic growth. He added that the Fed has yet to achieve its mission is to promote maximum employment growth and stable inflation, which means that the loose monetary policy will continue.


    Dudley will speak to reporters at a press conference of his own on Thursday this week. The event is scheduled to talk about the local job market, but he can also answer questions about the Fed's plan for bond purchase program and interest.


    Michael Hanson, an economist at Bank of America Merrill Lynch said: "The market is very nervous about the Fed will withdraw the bond-buying program faster than what the bank officials say." Hanson said that the Fed has an important opportunity this week to get rid of that thought. Economist Eric Green of TD Securities said it, "the market has misunderstood the point of the Fed, in fact, inflation is still low enough not to rush to the Fed to raise interest rates."