Fed Tapers Quantitative Easing Program By $10 Billion Per Month; Rate Outlook Changed

benOn Wednesday the Federal Reserve decided to scale back the pace of its $85 billion monthly bond purchases in its massive monetary stimulus program known as quantitative easing that has helped to reduce long term interest rates and stimulate the U.S. economy.

The Federal Reserve is moderately reducing or “tapering” its bond purchases at a pace of $10 billion to $75 billion beginning in January, citing improvements in the labor market and economic activity.

“In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions, the Committee decided to modestly reduce the pace of its asset purchases” the Fed wrote.

The Federal Reserve made it clear that it is not pulling away from supporting the economy and intends to keep short term interest rates near zero “well past” its earlier 6.5 percent unemployment rate threshold as long as inflation does not  rise more than a half percentage point above the Committee’s 2 percent longer-run goal.

The Federal Reserve has held short term interest rates near zero since 2008 while the economy was in a deep recession.

When the Federal Reserve started their quantitative easing program in September 2012, the stated goal of their monetary stimulus program was substantial improvement in labor market.

The U.S. unemployment level has fallen from 7.8 percent in September 2012  to 7.0 percent in the last employment reading in November 2013, the lowest unemployment rate since November 2008.

Despite those unemployment gains, many Americans are still unemployed and a sizeable number of the jobs created since September 2012 are not high paying ones.

“The recovery clearly remains far from complete” Bernanke admitted during his final press conference.

 

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