Federal Reserve Chairman Ben S. Bernanke said the central bank may start reducing bond purchases later this year and end them in mid-2014 if the economy continues to improve as the central bank forecasts.

"If the incoming data are broadly consistent with this forecast, the committee currently anticipates that it would be appropriate to moderate the pace of purchases later this year," Bernanke said today in a press conference in Washington. "If the subsequent data remain broadly aligned with our current expectations for the economy, we will continue to reduce the pace of purchases in measured steps through the first half of next year, ending purchases around mid-year."

Bernanke spoke after the Federal Open Market Committee said today it would maintain the $85 billion pace of monthly asset purchases and that it sees the "downside risks to the outlook for the economy and the labor market as having diminished since the fall." The FOMC (TREFQE2) repeated that it's prepared to increase or reduce the pace of purchases depending on the outlook for the job market and inflation.

Bernanke is expanding the Fed's balance sheet toward $4 trillion as he seeks to reduce a jobless rate that stands at 7.6 percent after four years of economic growth. Concern that the Fed is closer to reducing the pace of asset purchases, also known as quantitative easing, pushed 10-year Treasury yields to the highest since March 2012.

Stocks extended losses after his remarks. The Standard & Poor's 500 Index declined 1.3 percent at 3:57 p.m. in New York. The yield on the 10-year Treasury note rose to 2.34 percent from 2.19 percent late yesterday.

David Fuller's view Approximately a month ago, some people, presumably including bond investors, were naively talking about 'interest rates staying low for ever'. Now the message that we have not only seen the best of the big QE tailwind, but that it will also end, is sinking in.

This more turbulent period for stock markets and particularly bond markets that Fullermoney has mentioned on numerous occasions earlier this year is clearly underway.