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Federal Reserve's Stimulus Program Shocks Investors

Raishad Hardnett |
September 19, 2013 | 10:31 a.m. PDT

Executive Producer

When Ben Bernanke opens his mouth, the world shakes. 

But this time, it shook from an announcement that no one anticipated: In a move that shocked investors around the globe, Bernanke, the Federal Reserve chairman, announced yesterday that the Federal Reserve would not yet be scaling back its stimulus program.

In typical economic fashion, stock markets reacted both immediately and dramatically to Bernanke's announcement. The S&P 500 stock index, for one, soared to a record high after the 2 p.m. statement. 

But now the question lies: The Fed has suggested numerous times this year that the economy may be picking up enough for it to scale back its program -- so why is it still buying $85 billion per month in bonds? 

SEE ALSO: Lawrence Summers Pulls Out Of Running To Replace Bernanke

Bernanke has said that the Federal Reserve would not scale back its bond-buying program until unemployment reaches 6.5 percent (the current rate is 7.3 percent, according to the Department of Labor's August jobs report) or until inflation threatens to accelerate.

Neither of those have happened, but some economists worry that another issue is behind the curtains.

"I think what Ben Bernanke fears most is the kind of thing the Fed can't do anything about, which is a financial crisis that is brought about not by external factors, but kind of self-induced by Congress," economist Neil Irwin said in an interview with PBS

"We had tax increases at the start of the year, the sequestration, spending cuts. All those things are dragging on growth."

Some are worried that discordance between Congressional leaders may lead to another debt ceiling crisis, in which the U.S. could default. There is potentially less than a month before Congress may need to raise the nation's debt ceiling.

Read more about the debt ceiling debate here.

Reach Executive Producer Raishad Hardnett via email or by Twitter



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