WASHINGTON, D.C. (12/18/13, UPDATED 2:45 p.m. ET)--In its last meeting of the year, the Federal Open Market Committee voted to "modestly reduce the pace" of its monthly asset-bond purchases to $75 billion per month from $85 billion, beginning in January.
The Federal Reserve monetary policymaking group announced today that it would begin to taper what has been known as its quantitative easing program.
In a 9-1 vote, the committee also reaffirmed the low target rate of the federal funds rate at 0% to 0.25%, as long as the unemployment rate remains about 6.5% and taking into consideration projected inflation of less than 2%.
In its statement released after today's meeting, the committee said its "sizable 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." In turn, this should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with FOMC's dual mandate, it added.
The FOMC said it saw improvement in economic activity and labor market conditions that are consistent with growing underlying strength in the broader economy. These conditions led the committee to modestly reduce the pace of its asset purchases. Beginning in January, it will add $35 billion per month of agency mortgage-backed securities to its holdings, down from $40 billion. Additionally, long-term Treasury securities will drop to $40 billion per month, down from $45 billion.
Economists predicted earlier this week that the Fed would not reduce quantitative easing until January, with some pushing the stimulus taper as far as March 2014.
Risks to the economic and labor outlook have become "more nearly balanced," the committee said, noting that an inflation rate of less than 2% could pose risks to economic performance. It will continue to monitor inflation for movement toward the Fed's 2% objective.
Inflation remains low, showing only a 1.2% increase in November compared with a year ago, the Labor Department reported Tuesday.
It was expected that the moderate improvements in the unemployment rate--November's number was 7%--might not meet Fed Chairman Ben Bernanke's threshold of 5.5% to tip the scales in favor of raising the short-term interest rates (The Wall Street Journal Dec. 17).
For the full statement, use the link.