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Fed Reduces Monthly Bond Purchases $10 Billion, Extends Guidance

Posted by Joseph Trevisani on Dec 18, 2013 2:18:00 PM

Once again proving that we do indeed live in extraordinary times, the Federal Reserve reversed itself for the second time in seven months and announced that it will reduce monthly bond purchases to $75 billion starting in January.

The reduction will be equally spread over Treasuries, which fall to $40 billion and mortgage-back-securities, which fall to $35 billion.

Chairman Bernanke said in press conference following the announcement that the FOMC anticipates further reductions in the amount of purchases throughout 2014 provided the economy continues to improve.

The central bank cited moderately expanding economic activity, improving labor and housing markets, and advancing household spending and business investment for its decision.

The bank also extended its forward guidance on the Fed Funds target rate, currently at 0.25 percent.

"In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. The Committee now anticipates, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6-1/2 percent, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal."

The Dow had gained 172 points to 16,047 at 2:51 pm. The euro was trading  at 1.3760 against the dollar within 5 points  of where it had been before the announcement, though in the immediate aftermath it had dropped as low as 1.3705 and as high as 1.3812.

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