Published on December 19, 2013

Fed to reduce bond buying by $10 billion

WASHINGTON (Dec. 19, 2013) — The Federal Reserve is scaling back its monthly purchases of government bonds to $75 billion per month from $85 billion — a modest but definite sign from the Fed that it thinks the economy is improving.

U.S. economic activity is expanding at a moderate pace, the Fed’s Federal Open Market Committee said in its most recent press release Dec. 18. Although the unemployment rate, at 7 percent, remains elevated, labor market conditions have improved since October, as well as household spending and business fixed investment, the FOMC said.

The Fed takes these signs as indicative of an improvement in the broader economy, the committee said. As a consequence, beginning in January the committee will reduce its monthly purchase of mortgage-backed securities to $35 billion from $40 billion, and its monthly purchase of longer-term Treasury securities to $40 billion from $45 billion.

“The committee’s sizable and still-increasing holdings of longer-term securities should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative,” the FOMC said.

The committee also said it intends to keep the current federal funds rate—the interest rate at which banks lend to other banks—at the rock-bottom rate of 0 to ¼ percent at least as long as the unemployment rate remains above 6.5 percent. The unemployment rate was 7.0 percent for the month of November, according to the Bureau of Labor Statistics.

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