Fed cuts stimulus as expected; Bernanke prepares to depart

Wed Jan 29, 2014 2:46pm EST
 
Email This Article |
Share This Article
  • Facebook
  • LinkedIn
  • Twitter
| Print This Article | Single Page
[-] Text [+]

By Jonathan Spicer and Jason Lange

WASHINGTON (Reuters) - The U.S. Federal Reserve on Wednesday announced a further $10 billion reduction in its monthly bond purchases as it stuck to a plan to wind down its extraordinary stimulus despite recent turmoil in emerging markets.

Fed Chairman Ben Bernanke, who hands the central bank's reins to Vice Chair Janet Yellen on Friday, also adjourned his last policy-setting meeting without making any changes to the U.S. central bank's other main policy plank: its longer-term plan to keep interest rates low for some time to come.

In a statement after the two-day meeting, the Fed said "economic activity picked up in recent quarters," and largely shook off a surprisingly soft reading on December jobs growth.

"Labor market indicators were mixed but on balance showed further improvement," the central bank said.

Losses in U.S. stocks deepened after the announcement, while U.S. government debt prices rose, with yields on the benchmark 10-year note hitting the lowest level since late November. The dollar rose against the euro, but fell against the yen.

"The Fed's action today represents a continuation of its resolute determination to end (bond purchases) during 2014," said Daniel Alpert, managing partner at Westwood Capital in New York. "The policy has hit its 'sell by' date."

Importantly, policymakers stuck to their promise to keep rates near zero until well after the U.S. unemployment rate, now at 6.7 percent, falls below 6.5 percent, especially if inflation remains below a 2 percent target. Some analysts had speculated the Fed could alter this guidance, given how close the jobless rate now is to the rate-hike threshold.

The decision received unanimous backing from Fed policymakers. It was the first policy meeting without a dissent since June 2011 - a nice sendoff for Bernanke.   Continued...

 
U.S. Federal Reserve Chairman Ben Bernanke responds to reporters during his final planned news conference before his retirement, at the Federal Reserve Bank headquarters in Washington, December 18, 2013. REUTERS/Jonathan Ernst