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Federal Reserve plans to end stimulus in October | Federal Reserve plans to end stimulus in October |
(about 11 hours later) | |
The Federal Reserve will end its stimulus programme in October if US economic growth continues at its current pace, according to minutes from its June meeting. | |
The Fed has been buying bonds to lower long-term interest rates and boost growth since September 2012. | The Fed has been buying bonds to lower long-term interest rates and boost growth since September 2012. |
A end to stimulus efforts indicates the Fed believes the US economy can continue to grow without its support. | A end to stimulus efforts indicates the Fed believes the US economy can continue to grow without its support. |
Currently, the bank is buying $35bn (£20bn) of bonds monthly. | Currently, the bank is buying $35bn (£20bn) of bonds monthly. |
That is down from a high of $85bn in January, when the US central bank first began trimming its monthly bond purchases by $10bn a month. | That is down from a high of $85bn in January, when the US central bank first began trimming its monthly bond purchases by $10bn a month. |
The minutes from the 17-18 June meeting of the Federal Open Market Committee (FOMC) revealed that the central bankers planned to continue their $10bn cuts until one final $15bn trim in October. | The minutes from the 17-18 June meeting of the Federal Open Market Committee (FOMC) revealed that the central bankers planned to continue their $10bn cuts until one final $15bn trim in October. |
"If the economy progresses about as the Committee expects...this final reduction would occur following the October meeting," the minutes said. | "If the economy progresses about as the Committee expects...this final reduction would occur following the October meeting," the minutes said. |
Bubble fears | Bubble fears |
US markets - which had been trading up for the day - shed a few points in the wake of the announcement, which many investors and analysts had long been expecting. | US markets - which had been trading up for the day - shed a few points in the wake of the announcement, which many investors and analysts had long been expecting. |
Investors had been unsure about the pace of the Fed's cuts, and had put the end of the stimulus programme at either October or mid-December. | Investors had been unsure about the pace of the Fed's cuts, and had put the end of the stimulus programme at either October or mid-December. |
By naming an exact date, the Fed has attempted to relieve that uncertainty. | By naming an exact date, the Fed has attempted to relieve that uncertainty. |
Now, the speculation on Wall Street will be when the central bank will raise its short-term interest rate - known as the federal funds rate - which has been at 0% since the 2008 financial crisis, when it slashed rates to boost growth. | Now, the speculation on Wall Street will be when the central bank will raise its short-term interest rate - known as the federal funds rate - which has been at 0% since the 2008 financial crisis, when it slashed rates to boost growth. |
Critics of the bond-buying stimulus programme - which is known as "quantitative easing - have argued that by keeping rates extremely low for a long period of time, the Fed has forced investors into riskier areas like stocks or corporate debt. | Critics of the bond-buying stimulus programme - which is known as "quantitative easing - have argued that by keeping rates extremely low for a long period of time, the Fed has forced investors into riskier areas like stocks or corporate debt. |
That has led to fears of a bubble, as the Dow Jones Industrial Average topped 17,000 points for the first time last week. | That has led to fears of a bubble, as the Dow Jones Industrial Average topped 17,000 points for the first time last week. |
However, Federal Reserve chair Janet Yellen recently sought to allay fears about increased risk in the financial sector. | However, Federal Reserve chair Janet Yellen recently sought to allay fears about increased risk in the financial sector. |
In a speech last week in front of the International Monetary Fund, Ms Yellen said that while she did "see pockets of increased risk-taking across the financial system", the Fed still had many tools at its disposal to act should certain sectors begin to overheat. | In a speech last week in front of the International Monetary Fund, Ms Yellen said that while she did "see pockets of increased risk-taking across the financial system", the Fed still had many tools at its disposal to act should certain sectors begin to overheat. |
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