Fed Taper Would Swap Stimulus for U.S. Market Stability: Economy

Federal Reserve Chairman Ben S. Bernanke has a choice: Sacrifice stimulus by trimming bond purchases or risk market distortion by further expanding the Fed’s $3.5 trillion balance sheet. Last week’s payrolls report gives him cover to cut.

That doesn’t make Bernanke’s decision any easier: Economic growth and inflation remain short of the Fed’s expectations, which might argue for keeping up bond purchases at an $85 billion-a-month clip. On the other hand, dialing back quantitative easing, or QE, would signal to investors that they don’t need to reach for yield by piling into risky securities.