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Question of the Day
Citing underlying strength in the economy, the Federal Reserve surprised world financial markets Wednesday by cutting back its bond purchase program by $10 billion a month in 2014.
The central bank said it will continue to pump $75 billion a month into the economy and markets through purchases of Treasury bonds and mortgage-backed securities, but the change nevertheless marked the first time since the Great Recession that the U.S. central bank has felt confident enough to move toward ending its extraordinary cash infusions.
Despite widespread predictions that the Fed would wait until next year to change course, the U.S. stock market took the move in stride, apparently viewing it as confirmation that the economy is poised to move into a higher gear next year.
The Dow Jones Industrial Average was up 136 points several minutes after the Fed announced the move shortly after 2 p.m.. The change represents the final policy move by Fed Chairman Ben S. Bernanke, who is due to be replaced by Fed Vice Chairman Janet Yellen at the end of next month.
Mr. Bernanke will brief the press on the Fed's reasons for starting its so-called "tapering" of asset purchases earlier than expected at a news conference scheduled for 2:30.
The statement issued by the Fed's interest-rate setting committee cited recent economic reports showing that the economy withstood very well this year's round of federal budget cuts and a 16-day government shutdown in October.
"Taking into account the extent of federal fiscal retrenchment since the inception of its current asset purchase program, the committee sees the improvement in economic activity and labor market conditions over that period as consistent with growing underlying strength in the broader economy."
About the Author
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