Fed feeling pressure as Bernanke era nears end

WASHINGTON— Federal Reserve officials, who have made clear that they intend to cut back on the Fed’s monthly asset purchases by the end of the year, must decide next week whether it is time to tap the brakes.

The far thornier challenge they face is convincing markets that the Fed remains committed to its broader effort to stimulate the economy even as it begins to pull back from the most visible component of that campaign — and even though as many as nine of the 12 voting members of the Fed’s policymaking committee may be replaced in the next year.

Most notably Ben Bernanke, the Fed’s chairman, is expected to step down in January; the person President Barack Obama is widely expected to nominate in his place, Lawrence Summers, has said little about monetary policy in recent years.

Fed officials are concerned that the markets will misinterpret the introduction of tapering, as the impending move is known, as a sign of a broader retreat. They are expected to discuss ways of reinforcing the Fed’s continuing determination to encourage economic activity and job creation when the Federal Open Market Committee meets here Tuesday and Wednesday.

The Fed under Bernanke has struggled for much of the past five years to find new ways of stimulating the economy beyond its base-line commitment since December 2008 to hold short-term interest rates near zero.

In 2012, officials announced an aggressive combination of asset purchases and forward guidance, both tied improvement in the labor market.

In June, however, Bernanke surprised many investors by announcing that the Fed intended to reduce the volume of monthly purchases by the end of the year and to end the purchases entirely by the middle of next year.

Investors have started to demand higher interest rates, driving up borrowing costs, and critics warn the Fed is pulling back too soon. The unemployment rate, 7.3 percent in August, is down from 8.1 percent in August 2012, just before the Fed launched the expansion of its bond portfolio.

But roughly half the decline happened because more adults were not even trying to find jobs. The share of adults with jobs, down sharply during the recession, has yet to recover any of its losses.