Fed cuts further €10bn from US stimulus programme

The Federal Reserve stayed the course on tapering its stimulus for the US economy yesterday, reducing asset purchases by $10bn (€7.32bn) for the second month in a row.

Amid emerging-market turmoil, blamed in part on its stimulus reduction, the Fed, as expected, cut the monthly bond-buying programme to $65bn beginning February and left its benchmark interest rate near zero, citing “growing underlying strength in the broader economy”.

Wrapping up the final meeting of the Federal Open Market Committee under departing chairman Ben Bernanke, policy makers noted that overall the US economy was doing better.

Ryan Sweet, of Moody’s Analytics, said: “If there was any surprise, it was the Fed’s decision not to cite international downside risks. The Fed was not going to be specific by mentioning emerging markets, but policymakers didn’t acknowledge the recent strains in global financial markets.”

The FOMC, appearing to acknowledge the weak December US jobs report, which many economists blamed on severe winter weather, said that “labour market indicators were mixed but on balance showed further improvement”.

The FOMC pointed out that the unemployment rate fell “but remains elevated”. The jobless fell to 6.7% in December, largely due to people dropping out of the workforce.

Household spending and business fixed investment has sped up in recent months, it noted, while the housing recovery was slowing.

Although fiscal policy remained a hindrance to growth, the impact of government budget cuts and tax increases was “diminishing”, Fed officials said.

Meanwhile, expectations for inflation, running below the Fed’s 2.0% target, “have remained stable”.

The Fed, whose dual mandate is maximum employment and price stability, said that conditions were appropriate for a further “measured” tapering of stimulus.

The policy makers reiterated that the pace of the asset purchases was not on a preset course and they would monitor the outlook for the jobs market and inflation, as well as the effectiveness and costs of the purchases, in deciding further action.

Mr Bernanke steps down tomorrow after an eight-year tenure at the helm of the US central bank. Vice chair Janet Yellen takes over the post on Saturday.

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