Investors keen to hear update on Fed policy

STOCK investors eager to hear from the Federal Reserve about its plans for continuing economic stimulus may get some soothing words from the US central bank this week.

The Fed is unlikely to tip its hand about when it might begin to scale back its bond-buying programme, but policymakers still may be inclined to try to tamp down recent volatility in financial markets with some mention of the issue.

The rally in stocks stumbled and Treasury bond yields rose to 14-month highs following Chairman Ben Bernanke’s comments that the Fed may decide to begin scaling back its quantitative easing.

As part of its quantitative easing policy, adopted more than four years ago, the Fed has been buying Treasury and other bonds each month to keep interest rates low.

Interpreting Bernanke’s words and recent signs about the economy has roiled markets since then. The Dow industrials climbed 200 points in eight of the 17 sessions since Bernanke’s comments, and its daily average swing has been 191.5 points. Stocks ended a third negative week in four last week. The Dow fell 1.2 per cent, the S&P 500 slid 1 per cent and the Nasdaq dropped by 1.3 per cent.

Investors worry speculation about the Fed’s course alone may have been enough to spark the long-feared pullback in stocks, which have rallied for most of this year. Despite recent losses, the S&P 500 is up 15 per cent so far this year.

Among this week’s economic reports, the Consumer Price Report for May is due tomorrow along with data on housing starts.