Fed’s Move to End Stimulus Aids Market Stability

The Federal Reserve Bank’s recent announcement that it is on the verge of ending its unprecedented and controversial monetary stimulus program seemed to reassure investors and let the Dow Jones Industrial Average eke out mild gains each day during the past week.

Credit the technique of “signaling” that involves the implementing of a policy with predictability that former Fed Chairman Ben Bernanke began and his successor Janet Yellen continued when she took the post early this year. Such steadiness in scaling back on the stimulus by $10 billion at each Fed meeting removed the kind of uncertainty that investors hate and staved off a potential market sell-off last week.

The Fed’s Sept. 17 announcement that it may end its purchase of government agency-issued assets at its next meeting also will let the U.S. central bank curb the immense growth of its balance sheet. Indeed, the Fed has added nearly $4 trillion in liabilities since 2008 through its monetary stimulus program and has caused House Financial Services Committee Chairman Jeb Hensarling, R-Texas, to hold hearings aimed at changing how the nation’s central bank operates.

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