US Fed cuts another $10bn from stimulus programme

The US Federal Reserve last night pledged a further reduction in its bond buying stimulus programme but said it would keep interest rates extraordinarily low for as long as required.

The Fed’s unconventional bond buying, known as “quantitative easing”, has helped keep interest rates unusually low to help the US economy recover and boosted markets in recent years.

The central bank said last night that it would reduce its bond buying programme by $10bn (£6bn) a month.

“In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions, the committee decided to make a further measured reduction in the pace of its asset purchases,” said the Federal Open Market Committee in its statement.

“Beginning in February, the committee will add to its holdings of agency mortgage-backed securities at a pace of $30bn per month rather than $35bn per month, and will add to its holdings of longer-term Treasury securities at a pace of $35bn per month rather than $40bn per month.”

The committee’s decision was unanimous and the meeting was Ben Bernanke’s last as chairman of the Fed before Janet Yellen takes up the top job.

Under Mr Bernanke, the Fed built up a $4trn balance sheet in an unconventional program aimed at keeping interest rates near zero. But concerns over the size of that balance sheet led the Fed to start “tapering”.

However the FOMC did add: “asset purchases are not on a pre-set course, and the committee’s decisions will remain contingent on its outlook for the labor market and inflation, as well as its assessment of the likely efficacy and costs of such purchases.”

On interest rates, the committee said: “The committee continues to anticipate that it will be appropriate to maintain the target range for the federal funds rate well past the time that unemployment declines below 6.5 per cent, especially if projected inflation continues to run below the committee’s 2 per cent goal.”