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US Federal Reserve slows monthly bond-buying to $55bn | US Federal Reserve slows monthly bond-buying to $55bn |
(about 1 hour later) | |
The US Federal Reserve has reduced its monthly bond-buying programme by $10bn (£6bn) to $55bn, its third cut in a row to the stimulus efforts. | |
It said while growth had slowed during the winter months, there was sufficient "underlying strength" in the broader economy to support the jobs market. | |
In a key move, the Fed said it will monitor a wide range of data before deciding when to raise interest rates. | |
It had previously hinted at doing so once the jobless rate fell to 6.5%. | |
"To support continued progress toward maximum employment and price stability, the committee today reaffirmed its view that a highly accommodative stance of monetary policy remains appropriate," the central bank said in a statement. | |
Broader indicators | |
The Fed lowered its overnight interest rate to 0% in December 2008 as part of the steps it took to trigger growth in the economy amid the global financial crisis. | |
That crisis hurt the US economic growth and resulted in high levels of unemployment. | |
Along with lowering the interest rates, the central bank also started buying bonds in an attempt to keep long-term borrowing costs low. | |
The idea was to encourage businesses to borrow and spend more, to try an spur growth in the economy and create more jobs. | |
The stimulus efforts appear to have had an impact and the US economy has been showing signs of recovery of late and the unemployment rate has fallen to 6.7%. | |
That has seen the central bank scale back its key stimulus measure, the bond-buying programme also known as quantitative easing, for three months in a row. | |
However, the bank said that it would look at multiple factors before approving any rise in interest rates. | |
"This assessment will take into account a wide range of information, including measures of labour market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments," it said. | |
Nervous markets? | |
US stock markets fell on the news. | |
Some analysts are saying the change in the Fed's guidance had some worried that the rates may rise sooner than expected. | |
"The Fed moved the goal post again," said David Molar, managing director at Hightower. | |
"It goes from a 6.5% unemployment threshold to a qualitative approach which is nebulous for the market. | |
"No one knows what will trigger further tapering, a pause in tapering or an increase in asset purchase. It's a major change in policy." | |
Mark Grant, managing director at Southwest Securities added: "What seems to be troubling the market is that even though it reiterated that it wouldn't be raising rates this year, people were put on notice that a hike is coming." | |
"We'll likely see some rise in short rates as a result of this, if not out across the whole curve." |