Fed cuts another $12b from stimulus program

File picture of traders at New York Stock Exchange floor. -- PHOTO: AFP
File picture of traders at New York Stock Exchange floor. -- PHOTO: AFP

WASHINGTON (AFP) - The Federal Reserve stayed the course on tapering its stimulus for the US economy Wednesday, reducing asset purchases by $10 billion (S$12.7 billion) for the second month in a row.

Amid emerging-market turmoil blamed in part on its stimulus reduction, the Fed, as expected, cut the monthly bond-buying program to $65 billion beginning February and left its benchmark interest rate near zero, citing “growing underlying strength in the broader economy.”

Wrapping up the final meeting of the Federal Open Market Committee under departing Chairman Ben Bernanke, policy makers noted that despite some mixed economic indicators since their December meeting, overall the US economy was doing better.

Information indicates “that growth in economic activity picked up in recent quarters,” the FOMC said in a statement. That was a bit more upbeat than its December assessment of the economy “expanding at a moderate pace.” 

“The Committee sees the risks to the outlook for the economy and the labor market as having become more nearly balanced,” it said.

Appearing to acknowledge the shockingly weak December jobs report, which many economists blamed on severe winter weather, the FOMC said that “labor market indicators were mixed but on balance showed further improvement.”

Household spending and business fixed investment has sped up in recent months, while the housing recovery was slowing.

Although fiscal policy remained a hindrance to growth, the impact of government budget cuts and tax increases was “diminishing,” the Fed officials said. Meanwhile expectations for inflation, running below the Fed’s 2.0 percent target, “have remained stable.”

The Fed, whose dual mandate is maximum employment and price stability, said that conditions were appropriate for a further tapering of stimulus.

“Taking into account the extent of federal fiscal retrenchment since the inception of its current asset purchase program, the Committee continues to see the improvement in economic activity and labor market conditions over that period as consistent with growing underlying strength in the broader economy,” it said.

The FOMC predicted that, with appropriate policy, “economic activity will expand at a moderate pace and the unemployment rate will gradually decline toward levels the Committee judges consistent with its dual mandate.”

It was the last FOMC meeting chaired by Bernanke, who steps down Friday after an eight-year tenure at the helm of the US central bank.

The FOMC decision was approved unanimously for the first time since June 2011. It was endorsed by 10 voting committee members, including Janet Yellen, the current vice chair who succeeds Bernanke as the first woman to head the Fed on Saturday.