"In light of the cumulative progress toward maximum employment and the improvement in the outlook for labour market conditions, the committee decided to modestly reduce the pace of its asset purchases ," the Federal Open Market Committee said on Wednesday at the conclusion of a two-day meeting in Washington . The Fed's purchases will be divided between $40 billion in Treasuries and $35 billion in mortga ge bonds starting in January.
Bernanke, in the final weeks of his eight-year tenure , is curtailing the purchases that swelled the Fed's balance sheet almost to $4 trillion as he sought to put millions of jobless Americans back to work. The policy, supported by his designated successor, vice chairman Janet Yellen, stirred concern it risks inflating asset-price bubbles even as its economic benefits ebbed.
"If incoming information broadly supports the committee's expectation of ongoing improvement in labor-market conditions and inflation moving back toward its longerrun objective, the committee will likely reduce the pace of asset purchases in further measured steps." The committee repeated that purchases are "not on a preset course."Treasuries fell after the decision, pushing the yield on the 10-year note to 2.9% at 2:04 pm in New York from 2.8% late yesterday. Stocks extended gains.
The central bank on Wednesday left unchanged its statement that it will probably hold its target interest rate near zero "at least as long as" unemployment exceeds 6.5%, so long as the outlook for inflation is no higher than 2.5%.
The panel added that it "likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6.5%, especially if projected inflation continues to run below" the Fed's 2% go al.
Price gains have lagged below the committee's long-run target. The central bank's preferred gauge of inflation, excluding food and energy, climbed 1.1% in the year through October. It has not breached 2% since March 2012.
Boston Fed President Eric Rosengren dissented, saying that changes on the bond-purchase program were "premature until incoming data more clearly indicate that economic growth is likely to be sustained above its potential rate."
Policy makers met amid signs the economy and labor markets were gaining strength, even as inflation remained subdued.
The jobless rate fell to 7% in November, a five-year low, as employers added a greater than-forecast 203,000 workers to payrolls. Unemployment was down from 10 percent in October 2009, during the recession, and up from 4.4% in May 2007.
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