Federal Reserve Chairman Ben S. Bernanke says the end of the central bank’s bond buying won’t constitute a move toward tighter policy. He may have a tough time convincing stock and bond investors that’s true.

The Fed is acquiring $85 billion of securities each month, and policy makers are grappling with how to condition markets not to interpret a stop in those purchases as a prelude to the exit from easy credit. Bernanke said Dec. 12 in Washington that he “would emphasize” the end won’t be “a turn to tighter policy.”

If the Fed fails, interest rates may climb prematurely, as traders arrange positions for the withdrawal of unprecedented monetary stimulus, according to Dean Maki, chief U.S. economist at Barclays Plc in New York. The Fed has kept its benchmark federal funds rate near zero for more than four years and swelled its balance sheet to a record of more than $3 trillion through three asset-purchase programs.

“There is a risk the markets get ahead of the Fed,” said Maki, a former Fed board economist. “It will be tricky for the Fed to signal it’s going to stop buying without signaling that tightening is imminent.”

Ending the Fed’s third round of so-called quantitative easing carries greater significance than completion of the previous two because those were introduced with defined amounts and durations.

Open-Ended Program

For QE3, the Federal Open Market Committee in September announced purchases of $40 billion a month in mortgage-backed securities, leaving the program open-ended until the labor market improves “substantially.” In December, the FOMC added $45 billion of monthly Treasury purchases.

Marilyn Cohen, founder of Envision Capital Management Inc. in Los Angeles, said she doesn’t think the Fed will be able to convince traders that interest rates aren’t going up when the central bank stops buying bonds. Cohen said she’s already lowered the interest-rate sensitivity of her $325 million portfolio in preparation.

“The markets are on edge; and any hint that things are changing, and we will see the repercussions,” Cohen said. “I’ve been in this business since 1979 -- I’m one of the old dinosaurs -- and I cannot remember when there was such a chorus in the investment landscape that all are calling for higher rates.”

Long-Term Concerns

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