"It is pretty obvious that the Fed was caught off guard by the market's reaction given the lengths to which they have gone to reshape market expectations"
-Drew Matus, deputy U.S. chief economist at UBS Securities LLC
Amid speculations of tapering the stimulus programme, known as quantitative easing, the yield on the 10-Year Treasury note surged up to 2.61% during the week, from as low as 1.63% in May. Therefore, officials at the Federal Reserve are trying to calm investors and market participants by emphasizing that the bond purchases will not halt until the world's largest economy will strengthen enough. Three officials said that the Fed's controversial QE could continue at full blast if the labour market does not improve substantially.
William C. Dudley, the president of the Federal Reserve Bank of New York, pointed out that any decision in regards with a reduction of the pace of asset-purchases, will not represent a withdrawal of stimulus, and support may be prolonged in case the economic performance fail to meet the Fed's forecasts. Currently the U.S. central bank is buying $85 billion a month in bonds, to lower long-term interest rates, which are considered as a benchmark to determine the borrowing costs for households and businesses. Market recorded a dramatic sell-off over the past week, as Ben Bernanke suggested the central bank could begin paring it stimulus programme by the end of 2013 and wind it down completely already by the middle of 2014.
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