News / Economy

US Fed to Scale Back Bond Purchases Starting January 2014

The U.S. Federal Reserve will start scaling back its monthly bond-buying program as early as next month. But the reduction will be gradual.  The Federal Reserve has been buying $85 billion a month in government bonds in an effort to keep interest rates low and boost economic growth.  As Mil Arcega reports, outgoing chairman Ben Bernanke says the stimulus is working.

Ever since the U.S. central bank introduced the latest round of monetary stimulus 12 months ago, long-term interest rates have remained near zero and unemployment has fallen a full percentage point.  As a result, the Federal Reserve says it's time to begin reducing its bond purchases by $10 billion starting in January.

Fed Chairman Ben Bernanke says the decision reflects the committee’s confidence in the U.S. recovery.

“Notably despite significant fiscal headwinds, the economy has been expanding at a moderate pace, and we expect that growth will pick up somewhat in coming quarters," said Bernanke.

Although inflation remains well below levels that would suggest growth, the Fed says the economy is likely to expand at an annualized rate of about 3 percent - with unemployment falling to about 6.5 percent by the end of 2014.

Bernanke says further reductions in bond purchases will take place in measured steps, depending on economic conditions.

“If the economy slows for some reason or we are disappointed in the outcomes, we could skip a meeting or two.  On the other side, if things really pick up, then of course we could go a bit faster.  But my expectation is for similar moderate steps going forward throughout most of 2014," he said.

Stocks surged on Wall Street following the announcement.  Even though many investors were expecting the Fed’s bond purchases to remain at current levels until March, economist Uri Dadush said the impact of the so-called “taper” was anticipated the moment Bernanke hinted at the possibility in May.

“In a sense, the effect of tapering has already occurred, you know because [REPORTER: it’s already been factored into the markets?].  What I’m saying is that the moment Mr. Bernanke made his speech, mortgage rates went up by a hundred basis points," said Dadush.

Despite the improved outlook, Bernanke warns the economy still needs the Fed's support. Bernanke, who is set to step down in January, says his replacement is committed to keeping interest rates near record lows until unemployment falls well below 6.5 percent.

You May Like

India PM Modi's Party Distances Itself From Religious Conversions

BJP under fire for being slow to rein in hardline affiliate groups allegedly trying to promote Hindu-dominant agenda by luring Muslims and Christians to convert More

Anti-Whaling Group Found in Contempt of Court

Radical environmentalists who threw acid and smoke bombs at Japanese whalers in the waters off Antarctica continue their campaign to disrupt Japan's annual whale hunt More

UN's Ban Urges End to Discrimination Against Ebola Workers

Ban was speaking in Guinea on the second day of a whistle-stop tour aimed at thanking healthcare workers of the countries at the heart of the epidemic More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
US Decision on Cuba Underscores Divisions Among Miami Cubansi
X
Sharon Behn
December 19, 2014 9:34 PM
For decades, older, more conservative Cubans have been gathering at Café Versailles on the corner of Calle Ocho to eat Cuban food and talk politics. After hearing of President Barack Obama’s decision, a number of them gathered in front of the café with posters to protest. VOA's Sharon Behn reports on the situation.
Video

Video US Decision on Cuba Underscores Divisions Among Miami Cubans

For decades, older, more conservative Cubans have been gathering at Café Versailles on the corner of Calle Ocho to eat Cuban food and talk politics. After hearing of President Barack Obama’s decision, a number of them gathered in front of the café with posters to protest. VOA's Sharon Behn reports on the situation.
Video

Video Three Cities Bid for Future Obama Presidential Library

President Barack Obama still has two years left in his term in office, but the effort to establish his post-presidential library is already underway. The bid for the Obama Presidential Library is down to four locations in three states -- New York, Hawaii, and Illinois. As VOA’s Kane Farabaugh reports, each of them played an important part in the president’s life before he reached the White House.
Video

Video Cuba Deal is Major Victory for Pope’s Diplomatic Initiatives

Pope Francis played a key role in brokering the US-Cuba deal that was made public earlier this week. It is the most stunning success so far in a series of peacemaking efforts by the pontiff. VOA religion reporter Jerome Socolovsky has more.
Video

Video Fears of More Political Gridlock in 2015

2014 proved to be a difficult year politically for President Barack Obama and a very good year for the U.S. Republican Party. Republican gains in the November midterm elections gave them control of the Senate and House of Representatives for the next two years -- setting the stage for more confrontation and gridlock in the final two years of the Obama presidency. VOA National Correspondent Jim Malone has a preview from Washington.
Video

Video Sudan School Becomes Target of Aerial Attacks

The school dropout rate is at an all-time high in Sudan's South Kordofan state because many schools have been destroyed during the three-year civil war between the government and SPLA-N rebel forces. Adam Bailes visited Sudan's Nuba Mountains' region and reports many children are simply too scared to go to school
Video

Video VOA Reporter Tours Devastated Peshawar School

Islamist militants wearing military uniforms and strapped with explosives attacked a military run school Tuesday in the northwestern Pakistani city of Peshawar. At least 141 people were killed in the horrific attack, most of them young students. VOA reporter Ayaz Gul visited the devastated school and attended the funeral of the principal who courageously tried to save her students from the deadly attack.
Video

Video Nigerians Fleeing Boko Haram Languish in Camp Near Capital

In its five-year effort to impose Islamic law in northeastern Nigeria, the Boko Haram extremist group has killed thousands of people and forced hundreds of thousands to flee. Some of those who ran for their lives now live in squalor on the edges of the capital, Abuja. Chris Stein reports for VOA.
Video

Video Aceh Rebuilt Decade After Tsunami, But Scars Remain

On December 26, 2004 there was an earthquake in the Indian Ocean so powerful it caused the Earth’s axis to wobble a few centimeters. Onshore on the island of Sumatra, the resulting tsunami was devastating. A decade later, VOA Correspondent Steve Herman reports from Banda Aceh, Indonesia, where although there is little remaining evidence of the physical devastation, the psychological scars among survivors remain.

All About America

AppleAndroid

World Currencies

EUR
USD
0.8143
JPY
USD
119.23
GBP
USD
0.6390
CAD
USD
1.1596
INR
USD
63.304

Rates may not be current.