In a surprise move, the Federal Reserve has decided to reduce its stimulus for the U.S. economy because the job market has shown steady improvement. The Fed will trim its $85 billion a month in bond purchases by $10 billion starting in January. The shift could lead to higher long-term borrowing rates for individuals and businesses.
The Fed announced the move in a statement after it ended a policy meeting Wednesday. At a news conference afterward, Chairman Ben Bernanke said the Fed expects to make “similar moderate” reductions in its monthly bond purchases if economic improvements continue.
“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 Fed statement said.
The market surprisingly rallied on the news. We like the small and gradual move too.