US Federal Reserve begins to taper bond buying

19 Dec 13
The US Federal Reserve has said that it will slow its quantitative easing programme in January by reducing monthly asset purchases by $10bn to $75bn.

Following a two-day meeting in Washington DC, the Fed’s Open Market Committee that sets monetary policy, said it would reduce its purchases of US government debt from $45bn to $40bn each month, and cut purchases of mortgage-backed securities from $40bn to $35bn per month. The purchases have been in place since December 2008 and in bid to boost economic activity.

The committee said a stronger job growth was behind the slowdown decision.

‘Economic activity is expanding at a moderate pace. Labour market conditions have shown further improvement and the unemployment rate has declined but remains elevated,’ the central bank said in a statement.

‘In light of the cumulative progress toward maximum employment and the improvement in the outlook for labour market conditions, the committee decided to modestly reduce the pace of its asset purchases.’

It added that, if unemployment continues to fall, it would likely reduce the pace of asset purchases in further measured steps at future meetings.

‘However, asset purchases are not on a preset course, and the committee's decisions about their pace will remain contingent on the committee's outlook for the labour market and inflation as well as its assessment of the likely efficacy and costs of such purchases.’

According to updated quarterly forecasts, published on Wednesday, the Fed said unemployment would fall from its current level of 7% to 6.3% by the end of next year and 5.8% in 2015.

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