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In His Own Words: How Bernanke Explained Fed Plans

By The Associated Press

WASHINGTON (AP) â¿¿ Federal Reserve Chairman Ben Bernanke spent the better part of an hour-long news conference trying to clarify for Wall Street when and why the Fed might begin shrinking its $85 billion-a-month bond-buying program.

The short answer is soon.

The reason is that the Fed has grown increasingly upbeat about the economy. But Bernanke's blunt message was not without a string of caveats. The most important is that any pullback in the Fed's support hinges on the economy strengthening further.

The prospect of fewer Fed purchases of Treasury and mortgage bonds has caused financial markets to shudder because investors expect interest rates will rise.

Those of us who don't work on Wall Street could be forgiven for still being a little confused.

Here are some of the key topics Bernanke touched on at the end of the Fed's two-day policy meeting Wednesday.

Economy looks better

The Fed released a policy statement that said the economy is strengthening and that the risks are diminishing. Bernanke said the economy is benefiting from stronger hiring, a healthier housing market and less financial stress on state and local governments.

Bernanke said it was worth noting that the economy has improved despite spending cuts and tax increase that kicked in earlier this year.

"The fundamentals look a little better to us," he said.

A "substantial" improvement

Bernanke justified the Fed's growing inclination to shrink its bond-buying program later this year â¿¿ and potentially end it altogether by the middle of 2014 â¿¿ by noting that it forecasts "substantial" improvement in the economy.

The Fed projects that the economy will grow as much as 2.6 percent in 2013 and up to 3.5 percent in 2014. The unemployment rate will fall from 7.6 percent in May to as low as 7.2 percent at the end of this year â¿¿ and to as low as 6.5 percent in 2014. And it forecasts inflation to remain beneath the Fed's target of 2 percent.

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