US Federal Reserve announces $10bn reduction in bond buying

Wednesday 29 January 2014 19.13
The meeting was Ben Bernanke's last meeting as Fed chief
The meeting was Ben Bernanke's last meeting as Fed chief

The US Federal Reserve has announced a further $10 billion reduction in its monthly bond purchases as it stuck to a plan to wind down the extraordinary stimulus despite recent turmoil in emerging markets.

Fed Chairman Ben Bernanke hands the central bank's reins to Vice Chair Janet Yellen on Friday.

He adjourned his last policy-setting meeting without making any changes to the US central bank's other main policy plank: its longer-term plan to keep interest rates low for some time to come.

The Fed acknowledged that "economic activity picked up in recent quarters, a nod to the broader US economic strength that prompted it to decide last month to begin reducing the asset purchase plan.

Starting in February, the Fed will buy $65 billion in bonds per month, down from $75 billion now.

It shaved its purchases of US Treasuries and mortgage bonds equally.

The decision received unanimous backing from Fed policymakers.

Overall signs of improvement in the US economy suggested they would stay on track to cut the purchases in line with what Mr Bernanke predicted would be "measured" steps until the programme was shelved later in the year.

A selloff in emerging market currencies and stocks in recent days, and disappointing US job growth in December, did not deter Fed officials.

The outgoing chairman took the Fed far into uncharted territory during his eight years on the job, building a $4 trillion balance sheet and keeping interest rates near zero for more than five years to pull the economy from its worst downturn in decades.

Policymakers stuck to their promise to keep rates near zero until well after the US unemployment rate, now at 6.7%, falls below 6.5%, especially if inflation remains below a 2% target.

With concerns growing over possible harm from so much money printing, the Fed decided last month to make its first cut to the bond buying.

Data in recent weeks, from consumer spending and confidence to industrial production, was largely upbeat and has bolstered the view of an improving economy.

Forecasters estimate US GDP grew at an above-trend annual rate of 3.2% in the fourth quarter after notching a 4.1% advance in the prior three months.

The show of strength provides a welcome backdrop for Mr Bernanke, who steps down on Friday after an unusually tumultuous and highly experimental stint atop the world's most influential central bank.