News / Economy

US Fed on Track to Reduce Monthly Bond Purchases

US Fed on Track to Reduce Monthly Bond Purchasesi
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Mil Arcega
March 19, 2014 11:34 PM
The U.S. central bank is on pace to reduce its monthly bond purchases by another $10 billion - and interest rates will remain near record lows until the job market approaches something closer to normal. So says Janet Yellen, who held her first news conference Wednesday as head of the U.S. Federal Reserve. Mil Arcega has more.
The U.S. central bank is on pace to reduce its monthly bond purchases by another $10 billion - and interest rates will remain near record lows until the job market approaches something closer to normal.  So says Janet Yellen, who held her first news conference Wednesday as head of the U.S. Federal Reserve.

There’s a new Fed chief in town - but in terms of monetary policy, there's very little difference between Janet Yellen and her predecessor, Ben Bernanke.  Despite her new responsibilities, the former central bank vice chair says don’t expect any surprises.

“In terms of the conduct of business, it’s pretty much the same as usual.  I’m not envisioning, nor have there been so far, any radical changes in how the Federal Reserve does its business," said Yellen.

That includes winding down the bank’s accommodative policies that have kept interest rates near record lows.  This means monthly bond purchases will drop another $10 billion next month to $55 billion a month.

The one notable change is the committee's decision to stop using a threshold level of 6.5 percent unemployment to decide when to start raising rates.

“Even after employment and inflation are near mandate consistent levels, economic conditions may, for some time, warrant keeping short-term interest rates below levels the committee views as normal in the long run," said Yellen.

Instead, steady job growth and a target level of 2 percent inflation will determine the pace of interest rate appreciation.

Mark Hamrick is Washington bureau chief at Bankrate.com.

“It’s an acknowledgment that 6.5 percent as a target was not perfect, because we know in the past that we’ve seen the unemployment rate decline for the wrong reasons," said  Hamrick.

At 6.7 percent - U.S. unemployment is close to a five-year low, but, Yellen says unusually bad weather in January and February has made assessing the underlying economy especially challenging.

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