It's a given on Wall Street that the Federal Reserve will slow and eventually stop its $85 billion-a-month bond purchase program, which is aimed at keeping interest rates low to encourage borrowing and hiring.
The big question is when and how quickly the program will be wound down. Here are key dates over the last four months when the Fed has given clues about its thinking, and how financial markets have reacted.
— MAY 22.
Markets are whipsawed by mixed messages from the Federal Reserve. Stocks rose in the morning after Fed Chairman Ben Bernanke told Congress that the Fed didn't plan to slow its economic stimulus any time soon. The market swoons in the afternoon after minutes released from the Fed's April 30-May 1 policy meeting reveal that "a number" of policymakers favor scaling back the purchases as soon as June — earlier than many expected — if the economy accelerates. The Dow Jones industrial average falls 80 points to 15,307, a day after it closed at what was then its all-time high. Investors also sell U.S. government bonds, sending the yield on the 10-year Treasury note up sharply, from 1.93 percent to 2.03 percent. It was the first move above 2 percent since March 14. The reason for the selling? Wall Street wants to exit bonds before the Fed slows down its purchases, which would decrease demand for bonds and drive their prices lower.
— JUNE 19.
Investors dump stocks and bonds after the Fed lays out a possible timetable for slowing and ending its bond purchases, providing the economy continues to improve. After a regularly scheduled policy meeting, Fed officials say the program could be cut back later in the year and ended by the middle of 2014. The Dow falls nearly 560 points over June 19-20. The yield on the 10-year Treasury note jumps from 2.19 percent to 2.42 percent over the same two-day period.
— AUG. 21.
The Fed releases minutes from its July 30-31 meeting showing that its board members believe it "might soon be time" to slow the bond purchases. The Dow falls 105 points, its sixth loss in a row. A key factor weighing on the stock market is the rise in bond yields, which investors worry could choke off a housing recovery by causing mortgage rates to increase too quickly. Bond yields rise as investors anticipate that the Fed could begin reducing its purchases in September. The 10-year Treasury yield climbs to 2.90 percent from 2.82 percent the day before.