Fed begins modest taper, citing stronger economy

McClatchy Washington BureauDecember 18, 2013 

Federal Reserve Chairman Ben Bernanke, December 18, 2013

KEVIN G. HALL — McClatchy Washington Bureau

— In what's expected to be his final meeting at the helm, Chairman Ben Bernanke and the Federal Reserve on Wednesday announced the beginning of the end for a controversial bond-buying program in support of the U.S. economy.

Starting in January, the Fed will begin tapering back by $10 billion a month its earlier $85 billion a month in bond buying that had happened since December 2012. The purchases of government and mortgage bonds were designed to spark more risk taking and thus more activity in the economy.

The statement from the rate-setting Federal Open Market Committee meeting cited improving conditions in the housing and labor markets and an improving economy and said it would "modestly reduce the pace of ... asset purchases."

The Fed warned, however, that asset purchases are not on a "preset course," a reminder that it could speed up the removal of stimulus or go back to it as conditions warrant.

While taking its foot off the accelerator a bit, the Fed isn't completely removing support. In addition to continue buying $75 billion a month in bonds and is also reinvesting principal payments from its holdings of bonds.

"The committee's sizeable and still-increasing holdings of longer-term securities should maintain downward pressure on longer-term interest rates, support mortgage markets , and help to make broader financial conditions more accommodative," the Fed statement said. 

Bernanke is scheduled to end his eight years at the helm of the world's most important central back next Jan. 31. His successor Janet Yellen, the vice chairman, is awaiting final Senate confirmation.

The move was somewhat of a surprise as inflation remains below the Fed's target of 2 percent and the stimulus was designed in part to spark inflation through more economic activity.

 

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