Fed Expected To Reduce Bond Buying At Fed Meeting

yelleThe market is flat in early trading as investors are cautious ahead of today’s Federal Reserve policy meeting in Washington where the central bank is expected to taper its monthly stimulus bond buying program by $10 billion this month and clarify its position regarding rate hikes.

Since the end of 2008 the Federal Reserve has kept overnight rates near zero while undergoing three rounds of quantitative easing with its bond buying program that has been lowered to $ 65 billion a month from $85 billion through the end of 2013.

If the Fed decides to taper its monthly bond buying program by another $ 10 billion this month, the Fed’s bond buying program will be lowered to $55 billion a month.

The Fed has pledged to not raise short-term rates or tighten monetary policy until the U.S. unemployment level dropped to 6.5 percent.

Last month the unemployment rate was 6.7 percent.

The economy is clearly on more solid footing compared to 2008 when the Fed Reserve engaged in highly accomodative monetary policy practices to help stimulate the economy.

In December former Fed Chairman Ben Bernanke changed the threshold for raising rates after stating that the Federal Reserve expects to keep its key short-term rate near zero “well past” the time that unemployment falls below 6.5 percent.

Today investors are expecting the Fed to provide more clarity about its new threshold for raising short-term interest rates.

The Fed will announce its policy decision in a statement at 2 p.m. EST. followed by Fed Chairwoman Janet Yellen’s first news conference since being named head of the central bank.

-Johnathan Schweitzer

 

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