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David Wyss, a former Fed economist who teaches at Brown University, said recent economic data has been mixed, suggesting that the Fed is unlikely to change course soon. Wyss said Fed policymakers will want to see more data and that any reduction in the Fed's current pace of bond purchases would probably not occur until the end of this year at the earliest. "I can't see them doing anything before fall, and they may well wait until next year," he said. And when the Fed does start trimming its bond purchases, Wyss predicts they will cut the pace to around $50 billion as a first step and then spend most of 2014 gradually reducing that level to zero. He expects investors' reaction by then to be "fairly muted." "I would assume the market will be expecting it by the time they finally do it," Wyss said. The prospect of a pullback in bond purchases is on the minds of several Fed policymakers, as the minutes of last meeting made clear. It wasn't what most investors wanted to hear Wednesday. A slowing of the Fed's bond purchases would ease downward pressure on long-term interest rates. As a result, they would likely rise from near-record lows, along with mortgage rates and rates on many others loans. Stocks, which have been boosted by investors shifting money out of low-yielding bonds, would likely fall. Though the Fed's tapering of its bond purchases would be gradual, any change from its current record-low-rate policy tends to incite anxiety. Still, Wyss said he didn't expect any panic in the stock market because the Fed will be acting in response to a stronger economy, which is good for stocks. "But the details are hard to know because it will depend on what the economy is doing at that point," Wyss said.
[Associated
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