US Federal Reserve begins tapering with $10 billion monthly reduction

US Federal Reserve begins tapering with $10 billion monthly reduction

Washington : DC : USA | Dec 19, 2013 at 4:01 PM PST
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Quantitative Easing

The US Federal Reserve intends to reduce its stimulus program by purchasing about $10 billion a month less in securities than the $85 billion it buys at present.

The Fed issued a statement that said:

In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions, the Committee decided to modestly reduce the pace of its asset purchases. Beginning in January, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $35 billion per month rather than $40 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $40 billion per month rather than $45 billion per month.

There was only one dissenting vote on the Federal Open Market Committee (FOMC). Eric Rosengren felt that the tapering was beginning too soon. He said: “[W]ith the unemployment rate still elevated and the inflation rate well below the target, changes in the purchase program are premature until incoming data more clearly indicate that economic growth is likely to be sustained above its potential rate.”

The FOMC predicted that US unemployment would range from 6.3 to 6.6 percent, down from an earlier range of 6.4 to 6.8. While the move is a sign the Fed will begin reducing the massive stimulus purchases it has been using to support the economy since the recession, the Fed will keep record-low short-term interest rates "well past" when the unemployment rate falls below 6.5 percent. This is designed to cushion any effect the tapering might have on financial markets.

The news of the stimulus reduction moved stocks up. Gold, however, suffered a decline, reaching its lowest level in two weeks. Roberto Perli, a former Fed economist, said that the Fed decision "eliminates the uncertainty as to whether or when the Fed will taper and will give markets the opportunity to focus on what really matters, which is the economic outlook."

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US begins tapering process
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