Federal Reserve officials said that the economy is a victim of misunderstanding. They told investors Thursday that they were mistaken in believing that the Fed will pull back its stimulus program soon. Three Fed officials delivered speeches that indicated the frustration of the Fed with regards to the increase in interest rates that started in May and accelerated after Fed chairman Ben S. Bernanke made his remarks last week.
William C. Dudley, president of the Federal Reserve Bank of New York, was one of the officials who delivered a speech Thursday. He is one of chairman Bernanke’s closest allies. The speeches helped rally the market, along with the optimistic domestic economic data and the easing of concerns regarding the financial conditions in China. Stocks increased and ended up for the third straight day. Interest rates went down to stop the increase.
The Standard & Poor’s 500 Index increased for the most in the first five months of 2013 to 1,669.16 on May 21. The next day Bernanke made his remarks that hinted of a change in the Fed policy. Soon after, stock prices dropped and the S&P 500 fell 5.7 percent to a low June 24, which was a couple of days after the latest statement by the Fed. Officials tried to clarify their goals and this led to the increase of the index by 2.5 percent since then.
The three officials emphasized that the Fed was optimistic about the sustainability of economic growth. They maintained that they expected to pull back the Fed’s monthly bond purchases later in the year. They also said that the Fed’s effort to decrease borrowing costs will still continue as long as possible.
The Fed is struggling to bolster the economic growth. The central bank tried to manage investor expectations with regards to the path of monetary policy. It tries to convince investors to keep interest rates low in the near future in order to decrease borrowing costs at present.