And we saw republicans vote along the democrats. Nine is a bigger number than ag. 6436, thats one of those super majorities, right, that. This now goes to the president for his signature. Expect him to sign it before he leaves for hawaii on friday. Those are the headlines, im tony harris. Inside story is next on al jazeera america. An ease or not to ease. What that means for the economy in 2014. Decoding the just concluded Federal Reserve meeting is the inside story. Ray suarez. What the Federal Reserve decides has a direct impact on the economy, and your pocketbook and effects felt around the world. Since the Great Recession the Federal Reserve has taken Interest Rates to historic lows and used its power to stimulate the economy using quantitative easing. Ben bernanke announced the feds will scale back the program next year. Well decode the feds actions, look ahead to the tenure of incoming fed chairman janet yellen and look at the recovering economy. The Federal Reserve wrapped up two days of policy meetings and concluded the u. S. Economy is Strong Enough to start tapering the banks Investment Program known as qualitative easing. Starting in january well purchasscale back purchases. Reporter the positive signs are few but strong. Unemployment reached 7 in november. The s p 500 gained 25 just in the past year. The highest in a decade. And Congress Passed a budget for the first time in four years. Todays policy actions reflect the committees assessment that the economy continues to make progress, but it has much farther to travel before conditions can be judged normal. Notebly despite fiscal head winds the economy has been expanding and we expect growth in the coming quarters. Reporter all this good Economic News could mean its time for the Federal Reserve to ease its massive monetary stimulus program. Quantitative easing is the feds monthly 80 billion Bond Buying Program determined to keep Interest Rates low to allow the economy to steadily improve. The majority of the bond purchase in qe went to u. S. Banks. This with the expectation that those banks would sell government bonds and mortgage back securities. However, banks have been holding on to that money and not investing it back into the economy. It was expected that the bond buying would increase inflation, but it was throughish. The trillion dollar investment on the part of the feds has not spurred the economy. I want to thank you for your outstanding service. Reporter ben bernanke is due to stepped down at the and of january having served through eight years during one of the hardest Economic Times in history. Obama would who will succeed him is one of the most important appointments that ill make as president. Because the chair of the fed is one of most important policymakers in the world. The next chair will help guide our economy after ive left office. Reporter benber any keys replacement, janet yellen is waiting for congress approval. Shell focus more on unemployment than inflation. Here with me to discuss the Federal Reserves decision to taper, mark, the director of Financial Regulation studies at the cato institute, and kay toe la costa, and Nela Richardson, senior economist with bloomberg. Well, with 85 billion a month to 75 billion. 10 billion is by anybodys measure still a lot of money. Is this a big deal, Nela Richardson . It is a big deal because they pushed a button. Its a start. Its a start that signals two things. One, that were going to have low Interest Rates for a very long time as part of the Federal Reserve guidance. And secondly the feds think the economy is improving. Thats significant after years of being sluggish, after years of treading water we might see some growth next year. Thats a big deal, and thats what gets markets excited. That i think is why you saw such a strong positive explosive Market Reaction to this taper decision. Well mark, what happens when 10 billion comes in relybly month after month. Is there going to be a difference. Instead of buying 85 billion a month, theyre not going to be buying 75 billion, but we dont know what is going to happen on the supply side. Is the government going to issue as many treasuries . Is fanny and freddy going to issue as much debt. If that reduces, then you wont see an impact. You will see a small impact on rates. And basis points are 100th of a point. So in the cost of mortgage or in across the economy. It will be noticeable to emphasize something that nela said. Its less the size than a signal in the change of confidence in the economy. At the beginning critics of the policy said this is terrible because this is the worse abuse of fiat money. Money that you talk into being, but then it didnt get lent out. It didnt go out flooding the economy. It got held in closets somewhere. If its not being issued. Its not written into being, will it make a difference . The question is will it make a difference on the Positive Side or the critic side. Critics said it would lead to run away inflation. But that has not been the fact. And it gave a little bit of pause about todays decision. But in terms of what mark is saying, what the effect will be and where is it going to go . The fed has been adding stimulus to the economy ever since the crisis started. This is the first time they have taken a step back from adding stimulus. Thats a significant event. Whether or not the 10 million will make a difference, thats a testament of the feds a communicating their own feelings. When ben bernanke was first broached about the idea, there was a freak out in the markets. He came out and said, this does not mean that were going to raise rates. This is a separate issues. Ray, just to distinguish, there is essentially two things that have been happening with the money that goes to the banking system. One is the easier in that reserves have increased and banks have been sitting on a lot of cash. 1. 5 trillion and 1. 7 trillion. And interesting enough even though the Federal Reserve has been buying treasury securities the banks themselves have been buying treasury securities. If you were to show a graft, it has been offset by bank lending to government and to the Mortgage Market. I think its better to look at what the fed has done as saying there are certain sectors of our economy, the mortgage sector, where were going to channel our liquidity to that direction. There are institutional reasons about our banking system, why most of this has ended up in the Mortgage Market rather than in other places in our economy. Well, nela, this was supposed to be stimulative, all during qe 1 and qe 2. But the narrative is that the economy is bumping along, steady, slow, and unspectacular growth. How can you put 1 trilliondollar into play and get that kind of result . Its not an accident that this policy targeted housing. Because housing, the housing sector is responsible really for pulling the economy forward during and after the recession. Its the firstits so Interest Rate sensitive its the first market to go down in a crisis, and its the first market to pick back up. Unfortunately, we did not see that. There are probably a lot of reasons why, and i think probably the most fundamental is the change in culture of what the house meant, who should have a house, and on the part of the banks, a resistence, reluctance to put that risk back in the market because they were the major losers from the subprime crisis. This policy tool that is supposed to pick up housing didnt do its job as effectively as it had in previous recessions. And for that reason alone you see some kind of stunting in the potential of growth going forward. Now there are other reasons, one of them being congress, and we can talk about that as well, but in terms of what the policies was supposed to do, housing was not the transition mechanism that it had been in the past. When we come back, i want to hear from you, pedro, what the continuing of the taper is going to mean to the economy. Stay with us, youre watching inside story. Unemployment still runs over its run normal rate at 5. 2 and 5. 8 and with inflation running below its long projective. High monitor policy remains appropriate. Welcome back to inside story. Im ray suarez. Thats outgoing Federal Reserve chairman ben bernanke. Hes talking about unemployment, inflation, and monitory policy. He mentioned today that he set transparency as an important priority for the time that he served as fed chair. When he talks like that is the public meant to follow it or really is he talking in technical terms to an audience of journalists and others who understand the technical talk . I think hes doing the best to straddle both worlds. His first attempt to be colloquial than his 60 minutes interview that he did. He has done a great job, especially when you consider where the fed is coming from. His predecessor Alan Greenspan led in policy by discretion. Were doing this because we think its best and were not going to tell you the reasoning behind it, bernanke has gone out of his way to use explanations to the public. He uses terminology that may not be your average persons vernacular, but he has increased the amount of transparency. And in this case what does that mean . Very low Interest Rates for a very long time. His message is that the fed is going to remain supportive of the economy regardless of this small retreat from the bond buying stimulus that it undertook today. So its not a signal that its going to be reduced another 10 billion a month after that. He suggested that it might happen but its not necessarily the case. He emphasized that its very dependent on the data, and as yellen and the rest of the committee will see it going forward. As we start to see job growth, they dont just look at the Unemployment Rate. Is it because o people are movig or leaving the labor force, but its also data dependent, and theyre telling us that it is fair to assume that for the next year or two it will be on the fairly easy side. I dont think thats going to change. We get new unemployment numbers every month. We get gdp numbers once a quarter. How often does the fed revisit decisions like this one. Revisit i mean whether theyre on the right track. Theyre constantly revisiti revisiting. Alan greenspan would use really technical data and obscure data to make decisions. I dont think ben bernanke does the same thing but there are a lot of economists scouring data as we speak looking for news and about what direction the economy is going. And i think along with some guidance on Interest Rates ben bernanke gave us a forecast, and it was optimistic. Is the economy going to be as strong in 2014 as was laid out today . Could he be seeing things that you cant yet see . Im sure he sees all kinds of things. I hope that the things that hes sighing are predictive of what happens that we know sometimes the fed gets it wrong. And defensive and overly optimistic. Theyve been wrong almost every time. Every year for the last three years theyve predicted higher. Now can we take a quick walk across the panel and see this it did what it was supposed to do. It depends on what you think it should have done. It lower Interest Rates and Mortgage Rates and 10 to 20 basis points. Were still down 2 Million Construction jobs from where we were at the peak. It has certainly made a difference, but on the other hand its added fuel in the stock market and pushed up housing more than it would have been otherwise. I think the cost outweigh the benefits but its there. Im with mark. Its helped the economy tread water but not swim. Were really getting out of second gear to see the ref up of the economy. Weve seen it in housing but not in jobs. Pedro . I think people who doubted efficacy of qe, so many hurdles that were basically, you know, we were going to get lucky to get through the year without a recession. And while it didnt get us to the growth we wanted to see with did get us off the fiscal drag that we thought we were going to see. So in that sense it has helped. Whether the unintended consequences down the line could be damaging, thats certainly true, but one of the costs that people want to traumatic about are the costs are asset if you believe the monitory policy works, the cost of not taking it a longterm unemployment problem that well have to deal with for several years. There is no easy answer for them. Just a quick break and when we return well talk about the future for the fed under its expected new chair janet yellen. This is inside story. Welcome whac back. Weve talking about the Federal Reserve and its role in the economy recovery. We have mark and pedro, and ne nela, janet yellen, i had to hedge my bets at the end of the last segment there. She has not been confirmed sworn yet but by all accounts shes on her way in. Said to be much more hawkish on getting the Unemployment Rate down than worrying about inflation, which as youve all mentioned has not been much of a problem lately. What does that mean in practical terms while the bank is unwinding this longterm stimulus project. I think since inflation has been so contained it means that she has the freedom to target unemployment as aggressively if she chooses as bernanke has in the past. She really can be data driven and deliberate but look at a certain set of indicators that is targeted at unemployment. Being motivated by those rather than worrying about the protecter ointerestrates. There is head wayne that may go forward, reverses, stops, the market may be queasy trying to figure out what the latest number means, we can expect to say that. Mark, with the new chair will there be new tools at her disposal. She certainly could change course. You could pro long. I think a lot of this will actually be when does the further tapering take place . So some of this is about timing as much as anything else. I think shell keep her foot on the gas longer than bernanke would, and its important to keep in mind its a committee. Shes not a dictator. It will be a committee and where she moves that committee is an interesting question, too. We dont know much about her management skills, her team leading skills, there are a lot of tools at her disposal, im skeptical about how effective those tools are, but there is a lot that she can try to do, and i think she will. Is there anything, pedro, that she revealed in her confirmation hearing that gives you signals about 2014 . You get the sense that she wants relevant policy co dont knewty. I think its interesting the that its permeated the entire Federal Reserve. The fed is reaching 14 trilliondollar, and they dont seem to want to take the financial sheet further. You get the sense that they want to move back to a world that they know how to operate, and thats the world of Interest Rates, thats basically to make promises about the future in order to keep rates low for even longer. So by saying we expectright now they have a promise, theyll keep Interest Rates near zero and long after it falls 6. 5 . Theyre going to stay that way for a long time. For all of the 21st century inflation has been sort of the long awaited guests that have not shown up to the party whether youre talking about the greenspan time for the bernanke time its always been talked off in a fearful way but never really quite gotten here. It depends on what youre looking at. Weve seen house prices go up. Weve seen Commodity Prices fluctuate widely over the last couple of years. The discussion around inflation often focus on core cpi, throws aside food, throws aside housing and those are components that tend to be volatile. But again we are backing out the housing, the so i would say i think that there are limitations to what you get looking at either core or cpi and you have to look at the asset impact of this. My concerns again there are pluses and minuses, costs and benefits to any of these policies. To me the big cost is are we inflating another asset public. What is happening with the housing market. Janet yellen was part of the reserve, which included arizona and nevada and she was there when the housing bubble was blowing up and you didnt hear her raise a lot of flags from her during that time. So i worry is she going to miss the next bubble . What do you have to watch to know if thats happening or not . This whole year there has been a huge disconnect between wall street and main street, and you see that perfectly as the stock market is up about 20 this year, and so main street suffers. And in testimony yellen was pretty reserved about the idea that there could be even a bubble or even froth in the market. I would keep looking for this disconnect. Does wall street and main street stay on the same page . It used to be when a good jobs number came out wall street tank because the stimulus would not be there. We want to see con grew wednesday in our two sides of the economy street, and that way we can be insured that there wont be this bubbly behavior in the economy mark, pedro, nela thank you. The program is over but the conversation continues. For more on this conversation or any other show you can log on to our Facebook Page or reach directly ray suarez news. In washington, im ray suarez. A rally in san salvador, capital of central americas smallest and most densely populated state. On the streets the chants are about the onward march of social justice, in a country thats seen bitter civil war and the transformation of former left wing guerillas into a political