U.S. Federal Reserve tapers bond-buying to $75B US a month – Tapering of bond-buying program indicates central bank believes U.S. economy is recovering

The U.S. Federal Reserve has decided to taper its bond-buying program by $10 billion US a month, beginning in January.  As Ben Bernanke prepares to step down as chair of the powerful U.S. central bank, the Fed voted Wednesday to reduce its monthly bond-buying program from $85 billion to $75 billion a month, posted online by the CBC News yesterday morning. ‘Beginning in January, the committee will add to its holdings of agency mortgage-backed securities at a pace of $35 billion per month rather than $40 billion per month, and will add to its holdings of longer-term treasury securities at a pace of $40 billion per month rather than $45 billion per month,’ it said in a statement.  The move came as a surprise to investors, who did not expect the Fed to taper its stimulus in Bernanke’s final month in office. Markets surged on the news with the Dow up 200 points in the half hour after the announcement.  It was at an all-time high at the end of the day, up 292 points at 16,167. The bond purchases are intended to keep long-term loan rates low to spur economic growth, and Bernanke in his news conference noted that the Fed continues a high rate of stimulus and continues to build a large portfolio of U.S. bonds, now amounting to about $4 trillion.  He said there would be ‘further measured steps at future meetings’ to reduce the amount of bonds the Fed buys each month, likely throughout 2014.  The Fed has been closely watching economic indicators, including the unemployment rate, which is at a five-year low of seven per cent.  ‘Recent economic indicators have increased our confidence that the job gains of the past quarter will continue,’ Bernanke said. Read the full article here. Raymond Matt, CFP, CLU, TEP, CHS

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